prior to the enactment of this bill, and that the unrestricted permitted class of beneficiaries would be applicable only to insurance which matures after enactment of the bill.

(NOTE.-General Bradley then proceeded to explain the further liberalization under the bill for lump-sum settlement, as well as payment of insurance to the estate of the insured (except where the insurance is payable in a lump sum) if the designated beneficiary dies before the insured or dies before receiving all the installments payable.)

EXTRACT FROM HEARINGS BEFORE THE COMMITTEE ON WORLD WAR VETERANS' LEGISLATION, HOUSE OF REPRESENTATIVES, ON H. R. 4965 AND H. R. 2379, 79th Congress, Pages 73 and 74

Mr. ALLEN. The whole scheme of this legislation is to make this national service life insurance more in line with ordinary life insurance by private companies?

Mr. BREINING. It is to put it on a peacetime as against the wartime basis.
Mr. ALLEN. And a business basis?

Mr. BREINING. Well, it was on a business basis during the war, but of course during the war the Government bore the great brunt of the losses because of bearing the cost of the extra hazards of military service, and so the restrictions were put in, because it was not felt that the Government wanted to spend a great deal of money paying out, through this vehicle, benefits to persons to whom the assured owed no moral responsibility. But now for practical purposes it will be on a self-sustaining basis, no different to any other mutual company, and we feel we should follow their practices.

MAY 22, 1953.

Hon. EDITH NOURSE ROGERS,

Chairman, Committee on Veterans' Affairs,

House of Representatives, Washington 25, D. C. DEAR MRS. ROGERS: This is in reply to your request for a report by the Veterans' Administration on H. R. 2126, 83d Congress, a bill to amend subsection 602 (j) of the National Service Life Insurance Act of 1940, as amended.

The bill, if enacted, would provide for the payment in a lump sum of the present value of any installments certain of national service life insurance which matured prior to August 1, 1946, remaining unpaid at the death of the last beneficiary specified in section 602 (h) (3) of the National Service Life Insurance Act of 1940, as amended, to the estate of the beneficiary, or if no person within the permitted class survives the insured, to the estate of the insured, except where the estate of the beneficiary or of the insured would escheat, in which event no payments would be made.

H. R. 2126 is identical with H. R. 3998, 82d Congress, and H. R. 2520, 81st Congress, on which the Veterans' Administration submitted reports to your committee under dates of June 8, 1951 (Committee Print No. 140), and June 22, 1949 (Committee Print No. 103), respectively.

Under the present law national service life insurance maturing prior to August 1, 1946, is payable only in installments and to the widow, widower, child, parent, brother, or sister of the insured, in the order named unless designated by the insured in a different order. The right of any beneficiary to payment of any installment of such insurance is conditioned upon his or her being alive to receive

it. With respect to insurance maturing on or after August 1, 1946, there is no restricted permitted class of beneficiaries and the insurance may be payable either in installments or in a lump sum as the insured elects. The beneficiary may elect to receive payments over a longer period of time than the period chosen by the insured.

With respect to insurance maturing prior to August 1, 1946, section 602 (j) of the National Service Life Insurance Act of 1940, as amended, presently provides that no installments of such insurance shall be paid to the heirs or legal representatives as such of the insured or of any beneficiary, and in the event that no person within the permitted class survives to receive the insurance or any part thereof no payment of the unpaid installments shall be made, except that if the reserve of a contract of converted national service life insurance, together with dividends accumulated thereon, less any indebtedness under such contract, exceeds the aggregate amount paid to beneficiaries, the excess shall be paid to the

estate of the insured unless the estate of the insured would escheat under the laws of his place of residence, in which event no payment shall be made.

As to insurance maturing on or after August 1, 1946, section 602 (u) of the National Service Life Insurance Act of 1940, as amended by Public Law 69, 81st Congress, May 23, 1949, provides that in any case in which the beneficiary is entitled to a lump-sum settlement, but elects some other mode of settlement and dies before receiving all the benefits due and payable under such mode of settlement, the present value of the remaining unpaid amount shall be payable to the estate of the beneficiary; and in any case in which no beneficiary is designated by the insured, or the designated beneficiary does not survive the insured, or a designated beneficiary not entitled to a lump-sum settlement survives the insured, and dies before receiving all the benefits due and payable, the commuted value of the remaining unpaid insurance (whether accrued or not) shall be paid in one sum to the estate of the insured, except that in no event shall there be any payment to the estate of the insured or of the beneficiary of any sums unless it is shown that any sums paid will not escheat.

It will be noted from the above that as to insurance maturing prior to August 1, 1946, no installments may be paid to the estate of the beneficiary or to the estate of the insured. In all cases where the insurance matured on or after August 1, 1946, save those in which the beneficiary was entitled to choose a lump-sum settlement and did not do so, the commuted value of the installments certain remaining unpaid at the death of the beneficiary is paid to the estate of the insured. Under the proposed amendment, in most of the cases where the insurance matured prior to August 1, 1946, payment in such cases would be made to the estate of the beneficiary because in the great majority of cases the insured was survived by one or more members of the restricted permitted class of beneficiaries.

Experience clearly demonstrates that insurance issued by the Government in wartime, which affords full coverage at peacetime premium rates, is very largely a gratuity. As the contributions of the insured are not sufficient to cover more than a small fraction of the cost, most of these losses must be paid from appropriations of public funds. For this reason, it was deemed appropriate by the Congress to limit payment of insurance benefits to cases in which the insured was survived by relatives within the permitted class, above specified, and then only in cases in which such relatives survived to receive the installments as they became payable.

There is no information available upon which to base an estimate of the cost of the bill, if enacted. However, the Government would have to bear most of the cost of the bill, but some of the expended liability would necessarily devolve upon the mutual funds of the other policyholders.

As part of the cost of the bill would be borne by the national service life insurance fund, it is my belief that the bill, if enacted, would not serve the best interests of the policyholders for whom such fund is maintained.

Advice has been received from the Bureau of the Budget that there is no objection to the submission of the adverse report to the committee.

Sincerely yours,

H. V. STIRLING,
Deputy Administrator

(For and in the absence of the Administrator).

Mr. PROUTY. Thank you, Mr. Norrell and Mr. Martin. Mr. NORRELL. Thank you for the courtesy you have shown us. Mr. PROUTY. As I understand it, there are no further witnesses. Without objection, I will insert a statement I have received from the Life Insurance Association of America, the United States Chamber of Commerce, and other data.

The hearing stands adjourned.

(The material referred to is as follows:)

STATEMENT OF THE AMERICAN LIFE CONVENTION AND THE LIFE INSURANCE ASSOCIATION OF AMERICA IN REFERENCE TO VARIOUS PROPOSALS BEFORE THE INSURANCE SUBCOMMITTEE OF THE HOUSE COMMITTEE ON VETERANS' AFFAIRS FOR THE REESTABLISHMENT OF NATIONAL SERVICE LIFE INSURANCE

The American Life Convention and the Life Insurance Association of America have a combined membership of 236 life-insurance companies representing approximately 97 percent of the life insurance in force in the United States with

legal reserve companies. This statement reaffirms the policy of the two organizations in reference to the role of the United States Government in furnishing lifeinsurance protection to present and former members of the Armed Forces and allied services.

I

The last occasion when the American Life Convention and the Life Insurance Association of America made a formal statement before a House committee in reference to these matters was when the Committee on Veterans' Affairs had under consideration various proposals of the 81st Congress to amend the National Service Life Insurance Act. At that time consideration was being given, among other things, to the following proposals: (1) Replacement of national service life insurance by a gratuitous indeminty; (2) replacement of national service life insurance by a group-insurance plan. In this connection these two organizations pointed out some of the pros and cons in reference to the proposed gratuitous indemnity. Attention was directed particularly to the fact that, even if Congress should replace national service life insurance, pressure for reinstatement of NSLI would probably still arise. Particularly the gratuitous indemnity might not prove to be a final answer for the reason that some veterans schooled to regard postservice life insurance as a vested benefit right would promote the reestablishment of national service life insurance without the repeal of the gratuitous indemnity. The fear was expressed that, if Congress did adopt the gratuitous indemnity as a substitute for the continuance of national service life insurance for any new participants, ultimately the country might have the gratuitous benefit program superimposed upon the original national service life insurance program. That possibility is faced today. The advocates of restoration of the original national service life insurance would not take away the gratuitous indemnity. On this issue, the American Life Convention and the Life Insurance Association of America reaffirm the position that there should not be this duplication of benefits. What was accepted as a substitute benefit in 1951 should not be made the basis of an additional benefit in 1953. If national service life insurance is to be reestablished, this should be done as a replacement of the gratuity just as in 1951 the gratuity was to be a replacement of national service life insurance. The reestablishment of national service life insurance should be on the basis of status quo of 1951.

II

A related matter to the superimposing of benefits arises in connection with a proposal (H. R. 3198) whereby the $10,000 gratuity would not be offset by NSLI or USGLI policy proceeds. At present, the $10,000 gratuity is reduced by NSLI or USGLI payments. The reason given for this offset is that the proceeds of a national service life insurance policy are in fact out of general taxation when the death arises from military service. The man himself does not pay for the so-called war mortality, the Government pays it. In practically all cases where the gratuitous indemnity is paid, the Government is paying for substantially the same war mortality that it pays under national service life insurance. Both in effect are gratuities. If one does not deduct from the amount of the present indemnity, payments made under national service life insurance, there would be a serious discrimination in that the United States Government would in many cases be paying double gratuitous indemnities. It is completely incompatible to have a dual system of gratuitious indemnity without at least offsetting national service life insurance or United States Government life insurance against these gratuitous indemnity payments. If there is to be a reestablishment of national service life insurance, it should be as a complete replacement of the present gratuitous indemnity program.

III

The Government should not provide life insurance coverage for a discharged serviceman whose physical insurability has not been impaired while in service. Private insurance companies are in a position to meet all of the insurance requirements of these men. Government insurance for these men can only be viewed as a subsidy. While no opinion is offered as to the desirability of granting such a subsidy to veterans, it seems abundantly clear that doing so does involve the maintenance of a hugh Government life-insurance business, with the administrative cost being paid from public funds.

Notwithstanding the generous subsidies involved in the system, the vast majority of veterans have discontinued their national service life insurance. It seems obvious that if the cost of the administration of a Government insurance system

were to be borne by the policyholders, a veteran would be ill-advised to choose Government coverage in preference to private life insurance with its superior service. The Government, in offering insurance to insurable veterans, duplicates and competes with private life insurance. From the standpoint of the Government it multiplies and projects into the future the high administrative costs which were so clearly shown by the 1951 studies.

It is recognized that those veterans who have become impaired physically while in service and have thereby lost their normal insurability should receive insurance protection of some kind at the hands of the Government without penalty for the impairment incurred. Any excess mortality arising in this group should be paid for out of general revenue. But with respect to the other veterans, it is strongly urged that under any plan adopted, the Government functions cease when service is terminated.

AMERICAN LIFE CONVENTION,

ROBERT L. HOGG,

Executive Vice President and General Counsel.
LIFE INSURANCE ASSOCIATION OF AMERICA,
EUGENE M. THORÉ, General Counsel.

DEAR MR. PROUTY: The Chamber of Commerce of the United States urges your Subcommittee on Insurance, in considering legislation affecting veterans' life insurance, to approve only legislation essential for a government insurance program which will provide a measure of protection to dependents of servicemen on active duty in time of war.

We recognize and favor provision by Government of some amount of insurance for those who lose their insurability while in such service.

We oppose legislation which would duplicate facilities or compete with private insurers. Government life-insurance coverage for a discharged serviceman whose insurability has not been impaired while in service is a duplication of facilities fully provided by private insurance companies. It is, therefore, an unnecessary Government expenditure and one which can be justified only as a device for granting a subsidy in the cost of life insurance.

As your Subcommittee reviews pending insurance legislation and deliberates upon the composition of a bill to be reported, the national chamber hopes that you will limit your efforts to recognized Government obligations to servicemen. We believe that this obligation can be adequately met without creating or extending a Government life insurance program in competition with private business, the cost of which is paid from general revenues.

I would appreciate it if you would make this letter a part of the record of your proceedings.

Cordially yours,

CLARENCE R. MILES, Manager.

STATEMENT OF THE VETERANS' ADMINISTRATION COMMENTING ON CERTAIN TESTIMONY OF THE REPRESENTATIVE OF DISABLED AMERICAN VETERANS ON H. R. 1261, H. R. 50, AND H. R. 36, 83D CONGRESS (PP. 1166-1170)

A. The following comments are made concerning the representative's statements on H. R. 1261. This bill proposes to make Government life insurance incontestable for fraud unless it is asserted by the Veterans' Administration within 2 years after the date of issue, reinstatement, or conversion, or 2 years after the date of enactment of the bill, whichever is the later.

1. It is recognized by the Veterans' Administration, the service organizations, and others who are familiar with this Administration that following World War II the Veterans' Administration was faced with a tremendous task, due to a variety of circumstances, oftentimes, beyond the Administration's control. While conditions immediately following the last war were not favorable, it is a fact that the

failure of the insured to tender his premiums timely was the primary reason for the lapse of the insurance. In many instances the person remitting premiums failed to furnish sufficient or even correct information needed to identify the account, causing considerable confusion and delay in the adjustment of the insurance. Regardless of the reasons for the insured's failure to tender his premiums timely, as he was obligated to do, it is difficult to understand how the conditions leading up to the lapse of the insurance could have influenced him to make false statements in his application for reinstatement. It would not appear that the events leading up to the lapse of the insurance is a proper basis for excusing his failure to state the true facts regarding his health.

2. The nonmedical reinstatement requirements of the Veterans' Administration are extremely liberal. The questions on the reinstatement application are simple, clear, and direct. The questions are in no manner qualified but are all inclusive. The answers to the questions are relied upon by the Veterans' Administration in accepting the reinstatement application without investigation into other files that the applicant may have in the Veterans' Administration. It would indeed be extremely costly and cause considerable delay in processing reinstatement applications if the Veterans' Administration was required in every case to search all of their records, to determine if the answers given were true. The claims folders in the majority of cases are located in the regional office in the State in which the individual resides whereas his insurance folders are in 1 of the 5 district offices. Thus, the examination of a claim folder in some cases would require the transfer of such folders a thousand miles or more to determine whether there was any evidence of record which would show that answers to the questions on the reinstatement application were false. While there has been a difference of opinion within the Veterans' Administration as regards the proper administrative rule in fraud cases, these differences have been resolved by the adoption of a policy promulgated by letter of October 26, 1948, to the branch offices of the Veterans' Administration and signed by the Executive Assistant Administrator of the Veterans' Administration to the following effect:

"In handling fraud cases in the future where the applicant in his application for insurance or for reinstatement thereof made a false statement of a material fact regarding his health with knowledge of its falsity and with intent to deceive, and the Veterans' Administration, without referring to the claim folder, relied upon such statement in granting the insurance, necessary action to cancel the insurance will be taken immediately upon discovery of the fraud."

3. Since the adoption of the administrative rule, the courts have recognized the separate entities of the various Services within the Veterans' Administration and the right of insurance service to rely upon the answers given by the applicant in his reinstatement application without reference to other Veterans' Administration files. The Circuit Court of Appeals for the Seventh Circuit in the case of Clohesy v. United States (199 F. 2d 475) stated:

"We think the pronouncement of this court in the Halverson case was correct and clearly disposes of the case at bar. Here the insured deliberately gave false answers to clear and simple questions, answers upon which the Insurance Section of the Veterans' Administration was entitled to rely without further inquiry and without a search of the records of other sections of the Veterans Administration. If the true condition of the health of the insured had been known to the person passing on the application for reinstatement, of course, the policy would not have been reinstated. If, as plaintiff contends, the insured was misled by the fact that the Veterans' Administration continued to accept premiums on the policy to the time of his death, he could have been misled only into thinking that, up to that time, his conscious, deliberate deception had succeeded. The plaintiff, who stands in the position of the insured, cannot escape the consequences of the insured's deliberate untruths by insisting that the Veterans' Administration was chargeable with knowledge that information relating to the request for reinstatement was false, simply because certain of its employees concerned with an altogether different function of the Administration later came into possession of the true facts in connection with the claim of the insured for compensation."

In the case of McDaniel v. United States (196 F. 2d 291) the Circuit Court of Appeals for the Fifth Circuit stated:

"We think it equally plain that it cannot be justly held that an insured who has been asked clear and simple questions, upon the understanding that his answers may be accepted as true, without further inquiry, may avoid the consequences of having answered falsely by the claim, that the United States, by consulting the disability files could have found out that what he put forward as true was in fact false, and, therefore, may not complain that it was tricked into reinstating the certificate.