MILITARY AND NAVAL INSURANCE

The next item of appropriation is "Military and Naval Insurance" and there is requested for this purpose in 1942, $16,240,000 which represents a decrease of $2,188,604 when compared with estimated obligations in 1941. This appropriation covers payments arising from contracts with World War veterans for what was known as War Risk Insurance. The payments now being made are those to veterans who suffered a permanent and total disability as the result of war service or during the post-war period in which they carried this type of insurance; payments to beneficiaries of soldiers who died in service or during the post-war period during which this type of insurance was in force; and payments to the Government life insurance trust fund to meet obligations sustained by that fund incident to the extra hazards of military or naval service of persons so engaged while protected by Government life policies.

In order to conveniently reflect the current and future trends, this estimate has been subdivided as follows: Disability awards, death awards, lump-sum payments, transfers to Government life-insurance fund, and refunds. Disability and death awards are divided into two general classes, "term" insurance and "automatic" insurance. Term insurance was granted to all veterans of the World War who made application for this form of benefit within 120 days after induction into service. The amount of term insurance was limited to $10,000 for each veteran. Monthly payments on term-insurance policies are based on $5.75 per $1,000 of insurance in force at the time disability or death award is made. Automatic insurance was granted to those veterans of the World War who were disabled or died within 120 days after being inducted into service and before application for term insurance was made. Monthly payments on automaticinsurance policies are fixed by law at $25.

The following table summarizes actual expenditures by major purposes for the fiscal years 1931 through 1940 and the expected monthly expenditures for the fiscal years 1941 and 1942, and clearly illustrates the trend of experienced payments and the basis for the formulation of the 1942 estimate:

In brief explanation of the major purposes shown in the foregoing tabulation, it may be stated that disability awards are the monthly disbursements made to those veterans who were permanently and totally disabled while their terminsurance policy was in force or during the period set forth by the regulations governing the payments of benefits authorized by the act providing for automatic insurance. The average number of original disability awards made per month during the fiscal year 1940 increased approximately 3.45 percent. Losses in the number of active awards due to transfers to death award decreased 4.17 percent. Terminations of disability awards during the fiscal years 1939 and 1940 averaged 12 per month. Disability awards paid in lump sum increased 1.54 percent in the fiscal year 1940. The number of active disability awards under automatic insurance decreased only 0.12 percent during the fiscal year 1940.

Death awards are the monthly disbursements made to the beneficiaries of those veterans who died while their term-insurance policy was in force, or who died during the period set forth by the regulations governing the payment of automatic insurance. These payments are limited to 240 months by the act authorizing payment of insurance benefits. A tabulation of term-insurance death claims shows that payment will expire on approximately 3,326 and 2,277 claims during the fiscal years 1941 and 1942, respectively. A study of the automatic-insurance death claims shows that payments will be completed on approximately 28 and 16 claims during the fiscal years 1941 and 1942, respectively, by reason of the expiration of the 240-month payment period.

Lump-sum payments (compromise or litigation) are expenditures resulting from a compromise effected between the veteran or his legal representative and

the Government as to the amount payable on a claim for permanent and total disability directly connected with service in the armed forces of the United States. During the fiscal year 1940 the number of term-insurance disability awards paid in a lump sum increased approximately 1.54 percent over the number of lump-sum payments made during the fiscal year 1939 and the average amount paid per claim increased 4.3 percent. Continuing this percent of increase during the fiscal years 1941 and 1942, it is indicated that approximately 204 and 228 lump-sum payments, respectively, will be made on the term insurance disability awards.

Lump-sum payments (beneficiaries) are those disbursements made to the estates of deceased veterans for the commuted value of the remaining installments upon the death of the named or recipient beneficiary. Upon the death of the named or recipient beneficiary, it is provided that the remaining unpaid installments due inder the contract of insurance shall be commuted to exclude unearned interest to date and paid in a lump sum to the estate of the deceased veteran for distribuon under the law of the State of residence of the veteran at the time of his death. During the fiscal year 1940 the average number of such payments decreased approximately 28.7 percent.

Transfers to Government life insurance trust fund are payments from this appropriation to the United States Government life insurance trust fund to meet bligations sustained by that fund incident to the extra hazards of military or caval service of persons so engaged while protected by Government life policies. From a study of the experience during the past 5 years it is estimated that an Average amount of $199,557 per month will be transferred from the military and aval insurance appropriation to the Government life insurance trust fund during the fiscal years 1941 and 1942.

Refunds are disbursements made in returning to the veterans any premiums paid through dates which are later found to be subsequent to actual proof of permanent and total disability which matured the policy. From a study of the past few years it is estimated that refunds will amount to approximately $2,000 per month during each of the fiscal years 1941 and 1942.

A decision of the Supreme Court of the United States, No. 154, dated January 3, 1939, affirmed a decision of the United States Circuit Court of Appeals for the Ninth District, to the effect that:

"In the light of the statutory development of the War Risk Insurance Act, there is no conflict between the general provisions of section 301 requiring conversion of yearly renewable term insurance by July 2, 1927, and the special benes granted by section 305 to that particular group of veterans to whom the Goverment had not paid disability compensation which was justly their due. The benefits of the special provisions of section 305 are extended to every veteran who has heretofore allowed his insurance to lapse'. The meaning of the words of the statute is apparent and we need not look beyond the language and statutory development of the War Risk Insurance Act. A lapsed policy, whether yearly renewable term or in converted form, comes within the provisions of section 305. Since the veteran was due compensation for service connected disabilities at the time his policy lapsed and at the time he became totally and permanently disabled, the amount of his uncollected compensation was sufficient to pay all premiums then due, his insurance was revived under section 305."

The above estimated expenditures for the fiscal year 1941 and 1942 for military and naval insurance make no provision for the additional disbursements that may ult from the above decision, since there is no established trend on which to base an estimate. However, the application of the provision set forth by this decision Tay show a very material increase in disbursements from the military and naval Esurance fund and may result in a deficiency in this appropriation.

The attention of the committee is now invited to chart No. 2, under the title "Military and Naval Insurance" in the books before you. That statement shows the actual disbursements for the fiscal years 1931 through 1940 with the estimated bursements for the fiscal years 1941 and 1942 by months, number of benefciaries and types of payments. With your permission I will insert the chart in the record at this point.

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