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April 15, 1948

Notes for Stiles on Brady Letter.

1. I have not attempted to work out any new life insurance arrangements until the final figures were available. However, it is well to point out a few facts about Mr. Brady's words about the large contributions. If a man contributes $24,000, he will have been a pilot for a minimum of 20 years; the contributions are based only on the first $12,000 and therefore the maximum annual contribution is $1200. It is unlikely that any pilot making $12,000 now will fly for 20 years more. A $24,000 contribution will more likely be based on, say, an average of $10,000, or less. On $10,000 average pay, it would take 24 years of flying to accumulate $24,000 in contributions and 30 years to accumulate $30,000. I leave out interest, which Captain Brady does not mention.

But take the unfavorable assumption that the $24,000 was accumulated in 20 years, that is, on a salary of $12,000. The annuity accrued will be $220 a month. This means that if the pilot lives for 9 years and one month after retirement at 60, he will get back all of his contributions, omitting any interest. As a matter of fact, the chances of the pilot at 60 living 109 months are a little better than 73 out of 100, even on the railroad mortality tables. On a table which is probably more appropriate for pilots, the chances of his living for 109 months after 60 would be better than 90 out of 100.

While we have not completed the construction of the various rates on the basis of the data collected from the questionnaires, I am sure that the disability rate will turn out to be substantially lower than the one I used in the preliminary calculations. Although I will want to add some safety factors, I think the final disability rate will be considerably lower than the one used before and, therefore, the cost of disqualification is likely to come out lower than on the basis of the preliminary figures. It may well be that at a somewhat lower cost than the 10 percent we bring in substantial insurance. In any event, calculations will be made to see what the cost is.

Captain Brady asked about the attitude of insurance companies on this question. Insurance companies normally sell annuities on which there is a cash surrender value, if the policy is surrendered in the first policy year, of about 60 percent of the premium paid. By about the fifth year about 90 percent of the premiums are returnable and at about the 10th or 12th year the total of all premiums can be gotten back upon surrender. Some