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THE LIBRARY

THE UNIVERSITY
OF CALIFORNIA

LOS ANGELES

GIFT OF
Mr. Holla Hayes

Gen. Agent-Los Angeles |

WHAT LIFE INSURANCE IS

AND

WHAT IT DOES

A PRIMER FOR LAYMEN
AND STUDENTS

William Alexander

THE SPECTATOR COMPANY

NEW YORK CHICAGO

By the National Association of Life Underwriters
1 1 West 42nd Street, New York

Seventh Edition — $M — 2-29

Bus. Admin.
Library

8773
A37w
PREFACE

There are no mysteries about life insur-
ance, and the facts regarding it are exceed-
ingly interesting. But the subject has been
befogged and made dull by stupid and in-
adequate explanations.

The aim of this little book is —

1. To tell what Life Insurance is and
what it does in so simple a manner that any
intelligent person may understand all that
the average layman wants to know, or needs
to know on the subject.

2. To provide a preliminary text book for
those who wish to make a thorough study
of Life Insurance.

3. To furnish a simple, but comprehen-
sive guide to those who are identified, or ex-
pect to be identified, with insurance work in
the office or in the field.

W.A.

775682

In this book Life Insurance will be explained on
the "participating" ("mutual") basis, as conducted
under the Insurance Laws of the State of New
York. After that the "non-participating" and
"mixed" plans will be described.

TABLE OF CONTENTS

X FIRST PART— LIFE INSURANCE EXPLAINED

What it accomplishes.

jji Why people insure.

II. Insurance defined.

III. Bed-rock foundations.

IV. Object of life insurance.

V. Insurance a necessity.

VI. Evolution of insurance.

VII. Technical knowledge es-

sential.

VIII. Law of Average.

IX. Law of Mortality.

X. Summary.

XI. What to charge.

XII. Three methods of charg-

ing.

XIII. The Reserve.

XIV. Assets, Liabilities, Re-

serve, Surplus.

XV. Dividends (Refunds).

XVI. Sources of Saving and

profit.

XVII. Taxation.

XVIII. Importance of low death

rate.

XIX. Three methods of conduct-

ing the business.

XX. Recapitulation.

SECOND PART— THE LIFE INSURANCE COM-
PANY.

How its business is conducted.

XXIII. The most popular kinds
of insurance.

XXI. What a life company is.

XXII. How conducted.

Ordinary Life Policy . . §49
Limited Payment Life §62
Term Life Insurance . . §63

Pure Endowment §64

Endowment Policy . . . §65

XXIV Life Income insurance. | XXV. The Survivorship Annuity.

TABLE OF CONTENTS

(Continued)

THIRD PART— INDUSTRIAL COMPANIES

XXVI — Insurance for the industrial classes.

FOURTH PART— OTHER KINDS OF INSUR-
ANCE.

XXVII. Other forms and plans of insurance.

Business Insurance .... §70
Child 's Endowment ... §71

Group Insurance §72

Instalment Policy §73

Joint Life Policy §74

Return Premium Policy §75

XXVIII. An experiment that failed.

(Illustrating the fact that a company, even if soundly based, cannot hope
for permanent success if it adopts "assessment" methods.)

XXIX. Fraternal and Assessment Insurance.

FIFTH PART— ANNUITIES.

XXX. An Annuity the converse of an Insurance Policy.

SIXTH PART— VALUE OF LIFE INSURANCE.

XXXI. Its development and scope.

XXXII. Popular fallacies.

XXXIII. How to select a company.

SEVENTH PART— TECHNICAL WORDS AND
PHRASES.

XXXIV. Definitions and explanations.

TABLE OF CONTENTS

(Continued)

SUPPLEMENTARY CHAPTER
THE INSURANCE SALESMAN.

APPENDIX
HOW TO DISCOVER CORRECT PREMIUM CHARGES.

Natural Premium
Single Premium

Level Premium
Annuity charges

FOR FURTHER DETAILS
SEE INDEX, PAGE 161

In the following pages a few passages, in condensed
form, from the following books by the author have
been utilized with the consent of the publishers.

The Life Insurance Company — Copyrighted and published
by D. Appleton & Co., 35 West 32nd St., New York.

The Successful Agent — Copyrighted and published by The
Spectator Company, 135 William St., New York.

The author has also drawn to some extent upon his
Correspondence Course on Life Insurance.

FIRST PART

LIFE INSURANCE EXPLAINED

WHAT IT ACCOMPLISHES

Life Insurance is based
on the axiom that "In
union there is strength"

- on the old fable of
"The Bundle of Sticks"

- on the truth that a
burden which would crush
the individual may be
borne with ease by a mul-
titude of individuals.

WHAT LIFE INSURANCE IS

I. WHY PEOPLE INSURE

1. Preliminary Explanation

If a party of modern tourists should be shipwrecked on a
desert island they would be forced to live in a very primitive
way.

Finding no houses, they would build huts or seek the shelter
of caves.

In the absence of roads and railways, they would cut foot-
paths through the jungle.

Each man would make his own clothes of skins, and his own
sandals of grasses or hides.

If the natural protectors of any of the women and children
in the party lost their lives, the men who survived would
provide for them.

But as soon as these people got back to civilization, they
would hasten to the tailor and the shoemaker. And, if wise,
they would also abandon the primitive method of leaving
their widows and orphans dependent on the voluntary charity
of surviving friends, and would go to a life insurance company
for the protection needed.

But why should they wish to shift this responsibility to a
life insurance company?

; For the same reason that they would cease making their
own clothes and shoes — because they would thus secure the
desired protection with far greater safety, economy and
efficiency.

But what is a life insurance company, and what precisely
are the services it renders?

Before attempting to answer these questions, we must
understand what "insurance" in general is, and then deter-
mine what "life insurance" in particular is.

II. INSURANCE DEFINED

2. Insurance in General

I have never seen a short and satisfactory definition of the
word "insurance," and I am not sure that a concise definition
can be framed. But I am sure that any intelligent person who
will study the following explanation carefully will have a
clear understanding of what insurance is.

Insurance is a device or plan, by means of which a large
number of people are associated together for mutual protection
in order that when one of their number suffers a loss, that
loss shall be repaired by the contributions of his associates.

Why this scheme, when fully developed is best accomplished
by means of a corporation — an insurance company — will be
explained hereafter.

A simple illustration will make the foregoing statement
clear.

ILLUSTRATION

Consider the case of a man whose only possession is a build-
ing worth $20,000. If he stands alone, and the building burns
he will be ruined. But if he has become a member of ?.n
association of 4,000 house-owners who have agreed to share
their losses equally, his ruin will be averted; for each of his
associates will come to his rescue. His $20,000 will be restored
at a cost to him of the nominal sum of $5, and at a cost to
each one of his associates of the nominal sum of $5.

Here we have roughly stated, the idea on which fire insurance
is based, and what is true of fire insurance is also true of
other kinds of insurance.

III. FOUNDATIONS

From what has been said, it will be seen that insurance of
all kinds is based on the axiom that In union there is strength
—on the old fable of The Bundle of Sticks — on the truth that
a burden which would crush the individual may be borne
with ease by a multitude of individuals.

Hence, this whole question may be summed up by saying
that:

Insurance in general is a device for repairing
some serious injury, at a moderate charge, by
bringing together a multitude of people, who
agree that if a certain loss fall upon one of them
a/7 shall unite in repairing that loss.

3. Life Insurance

Just as men can protect themselves against the pecuniary
losses that result when buildings are burned or when ships
are wrecked, so they can protect themselves against the
pecuniary losses which follow in the train of death.

How this can be done can be indicated most clearly by
determining exactly what life insurance aims to accomplish.

IV. OBJECT OF INSURANCE

4. Aim of Life Insurance

What is the object of life insurance as distinguished from
other kinds of insurance? Can it restore a life that has been
terminated, as a fire-company can rebuild a house that has
been burned? No. It merely gives compensation for some
product of life. In its simplest form it restores to the family
the value of something which is lost at the time the bread-
winner dies, such as the fruits of his labors.

Other forms of life insurance give protection against losses of
other kinds, but these need not concern us at present.

Few men accumulate sufficient capital to support theii
families after their death, and those who rely altogether on
their own resources often leave their dependents in straitened
circumstances.

In such a case, if the breadwinner has failed to accumulate
a capital sufficient to produce an income adequate for the
support of his dependents after his death, he should turn to

the insurance company. He knows that he can provide for
his family as long as he lives, but he also knows that he will
be powerless to do so thereafter. It is true that he could ask
a relative or friend to look out for them, but it might not be
possible to discover anyone sufficiently benevolent to assume
so heavy a burden. Moreover, the idea would be repugnant to
any independent, self-respecting man. Besides this, he would
know that such charitable aid would be indefinite and un-
certain, and might prove altogether inadequate. In such a
case, the safest and best — usually the only — resource is to
take advantage of the protection thac life insurance offers.

V. LIFE INSURANCE A NECESSITY

5. The Need for Life Insurance

Life insurance is not a luxury like a painting, a statue, or
a precious stone. It is a necessity. And the need for it is
widespread and constant.

Nor is this need a modern development: it is as old as
civilization itself.

In the early days, before there were life insurance companies,
surviving relatives provided after a fashion for destitute
widows and orphans; or the hat was passed round among
friends and acquaintances; or the municipality, through the
poorhouse and the asylum, offered an inadequate substitute
for insurance protection.

But the life insurance company now does with efficiency and
economy what all right-thinking people wish to have done,
but cannot do themselves except in an inadequate or blunder-
ing fasion.

6. What is a Life Insurance Company

A life insurance company is simply a business organization,
established to furnish the people with the protection of life
insurance of all varieties, in a thoroughly efficient manner.

But every such company is sustained by the money con-
tributed by the people who avail themselves of its services.
And although it may not be managed by them, it is, if properly
managed, conducted strictly in their interests.

VI. EVOLUTION OF INSURANCE

7. Evolution of Life Insurance.

Life insurance as a business had its earliest beginnings in
Great Britain. But that kind of Insurance did not come first.
Other kinds, including the insurance of ships and their cargoes,
preceded it. The earliest experiments in life insurance, more-
over, were crude and defective. And the life insurance business
can hardly be said to have been established on a sound and
efficient basis until The Equitable Life Assurance Society
of London* organized its business, a century and a half ago,
on a scientific foundation, by introducing the practice of
grading its charges according to the age of each customer.

Since then "the development of the life insurance business
has been continuous — especially in the United States — and
may now be said to have become a perfected system.

VII. TECHNICAL KNOWLEDGE

But what is the scientific basis on which this business rests?
Perhaps this question may be answered most clearly by the
employment of a few simple illustrations:

8. A Novice Could Not Succeed

Forty years ago, Tony Moreno left the village of Hudson
with a capital of $4.50 in his pocket. He worked his way down
to the city on board a sloop, and landed at a dock where a
vessel from the West Indies was discharging a cargo of fruit.

That gave him an idea : he bought some bananas and oranges
and set up a fruit stand.

The "Old Equitable ' ' of London was incorporated in 1762.

He knew nothing about the fruit business, but he did know
what his bananas and oranges had cost him, and he sold
them at a profit, and invested the proceeds in a larger supply.

Today he is at the head of the firm of Moreno, Lorenzo &
Co., the famous wholesale grocers and fruit dealers.

Now, let us suppose that you are as ignorant about the
insurance business as Tony was about the fruit business. If
that were the case, could you start an insurance company as
he started his fruit business?

AN ILLUSTRATION.

Let us suppose that you have opened an office, and that
Mrs. Richard Roe invites you to call on her, for the purpose
of insuring her husband's life for $5,000, the money to be
paid to her after his death.

On calling you find Mr. Roe in bed, and ask the doctor who
is standing by, if his patient is seriously ill. You learn that
the man is dying — may be dead in an hour, and cannot
possibly last through the day.

What, in such a case, must you charge? The answer is
obvious: you know that if you grant this insurance you will
assume an obligation to pay $5,000 almost immediately.
Consequently, your charge cannot be less than that amount
($5,000).

It is not conceivable that you would suggest so preposterous
a transaction as this; and, as it would undoubtedly occur to you
that it is not customary to insure the lives of invalids, you
would probably say that on account of Mr. Roe's illness you
would not be able to issue a policy.

But what has enabled you to discover the proper charge in
this case? Can you tell? Certainly. It is the fact that you have
discovered just when Mr. Roe will die.

ANOTHER ILLUSTRATION.

Now let us suppose that on your return to your office you
find there a man who wants $1,000 of insurance. What will
you do? You will have him examined by a physician, and if
he is given a clean bill of health you will be ready to proceed.

But when he asks you to name your charge you will be all
at sea, for you will have no means of knowing how long he
will live. Of course, you may make a wild guess and tell him
that he must pay, say, $100 down, and the same sum annually
thereafter.

Assuming that you have fixed this rate, let us see how it will
work:

If the man is run over by an automobile and is killed on
his way home, you will be out $900. Your charge will have
been altogether inadequate.

But if he meets with no accident and lives for forty years,
you will take in $4,000,and make a profit of $3,000 plus interest.
You will have grossly overcharged the man.

Let us now drop these illustrations, which have served their
purpose, and see if we can find out what really ought to be
charged.

We must discover the cost of insuring a large
number of people before we can determine the
share which each person must pay.

9. The Cost of Insuring Lives.

The proper charges to make for life insurance cannot be
discovered if we attempt to deal with single cases. It can
only be done if we deal with a multitude of cases.

Why is this?

It is because we cannot know how long an individual will
live, while the average length of life of a large body of people
can be determined with substantial accuracy, in accordance
with the scientific principle called the Law of Average.

Let us glance for a moment at this law.

VIII. LAW OF AVERAGE

10. Law of Average

If you pitch a penny three times it may come up heads
every time. But you will make a mistake if you conclude
from this that a tossed penny will always come up heads.
Everyone knows that if we toss a coin a number of times
tails are likely to come up as often as heads. And if we toss
it a sufficient number of times to give the Law of Average the
opportunity of working smoothly, the uniformity of the result
will be remarkable. For example, if we toss the coin 20,000
times, the result will be approximately as follows:
Heads 10,000 times. Tails 10,000 times.

These are familiar truths, but it is not so well known that
the Law of Average applies also with substantial accuracy to
what are seemingly the most eccentric of happenings. Some-
times, for example, the sender of a letter forgets to put a
postage stamp on the envelope. At first blush, the attempt
to apply any fixed law to such an accident would seem prepos-
terous, but experience proves that in a great central office
where millions of letters are posted, the proportion that will
be unstamped in a given year can be predicted with some
degree of accuracy.

IX. LAW OF MORTALITY

11. Law of Mortality

Thus it is with life. Charles Babbage, who wrote with
authority more than a century ago, said "Nothing is more
proverbially uncertain than the duration of human life when
the maxim is applied to an individual, but there are few
things less subject to fluctuation than the average duration
of life in a multitude of individuals. ' ' And Dr. Southwood
Smith, another authority, went so far as to say that "Mortality
is subject to a law the operation of which is as regular as that
of gravitation. ' '

The uncertainty regarding the life of the individual makes
life insurance necessary. The certainty regarding the life of a
multitude of individuals makes it possible and safe.

By carefully studying the Law of Average as applied to
the duration of human life, statistics were gradually gathered
and tabulated, and finally what are called tables of mortality
were successfully constructed.

Every such table was based at first on the recorded death
rate of some city. Every modern table is based on more
accurate statistics, such as the experience of some insurance
company or group of companies.

X. SUMMARY

Let us pause for a moment to bring together the truths
that have been established, and to determine what problems
remain to be solved.

We have seen that a life insurance company is nothing
more nor less than a large body of people banded together for
mutual protection, and that the interests of those who die
are thus safeguarded by the contributions of those who survive.

How this is possible has been shown in § 2 by means of a
simple illustration.

But everyone knows that it is not necessary for the man
who wants protection to form an independent organization. He
can go as an individual to a company already established,
and can obtain the amount and kind of insurance desired.

But how is the company to know what charge to make?
We have seen that the answer to this question is that the
only way is to find out first what the cost will be for a large
body of people. After that, by applying the Law of Average
the share which each individual should pay can be determined.

But how can this be done? How is it possible to frame
price lists (tables of premium rates) for different kinds of
insurance, some kinds costing more to grant than others,
and all varying according to the age of each individual?

The answer is that correct charges are determined by
means of a Mortality Table.

XI. HOW TO DISCOVER WHAT TO
CHARGE

12. Mortality Table

One of these tables, the American Experience Table, is the
one used by the Insurance Department of the State of New
York, and by most of the companies.

This table starts with
100,000 persons, all 10
years of age; and ac-
cording to the table, 749
of them will die before
the end of the year;
leaving 99,251 to reach
the age of 11.

During the following
year, 746 will die, leav-
ing 98,505 to attain the
age of 12.

Thus a definite num-
ber will die from year to
year until at age 95 only
3 will remain. And pre-
sumably these three will
die before reaching the
age of 96.

13. Natural Method

Now, let us see how
this table can be utilized
in determining the cost
of insuiing the lives of a
body of men. (Ignor-
ing interest and expenses
temporarily.)

THE AMERICAN EXPERIENCE

TABLE OF MORTALITY

No. Sur-

Deaths

No. Sur-

Deaths

Age

viving at

Each

Age

viving at

Each

Each Age

Year

Each Age

Year

100,000

749

65,706

1,143

99,251

746

64,563

1,199

98,505

743

63,364

1,260

97,762

740

62,104

1,325

97,022

737

60,779

1,394

96,285

735

59,385

1,468

95,550

732

57,917

1,546

94,818

729

56,371

1,628

94,089

797

54,743

1,713

93,362

725

53,030

1,800

92,637

773

51,230

1,889

91,914

7?2

49,341

1,980

91,192

70!

47,361

2,070

90,471

790

45,291

2,158

89,751

7i9

43,133

2,243

89,032

718

40,890

2,321

88,314

718

38,569

2,391

87,596

718

36,178

2,448

86,878

718

33,730

2,487

86,160

719

31,243

2,505

85,441

720

28,738

2,501

84,721

7°1

26,237

2,476

84,000

7?3

23,761

2,431

83,277

21,330

2,369

82,551

729

18,961

2,291

81,822

732

16,670

2,196

81,090

737

14,474

2,091

80,353

742

12,383

1,964

79,611

749

10,419

1,816

78,862

756

8,603

1,648

78,106

765

6,955

1,470

77,341

774

5,485

1,292

76,567

785

4,193

1,114

75,782

797

3,079

933

74,985

812

2,146

744

74,173

828

1,402

555

73,345

848

847

385

72,497

870

462

246

71,627

896

216

137

70,731

927

69,804

962

68,842

1,001

67,841

1,044

66,797

1,091

In order that the explanation shall be clear and simple
let us assume that the members of this body are all of the
same age (50), that the amount of insurance in each case is
to be $1,000, and that the number forming the body corres-
ponds with the number of survivors in the Table at age 50;
namely 69,804 persons.

Let us now see what it will cost (disregarding interest and
expense) to insure these persons, for $1,000 each for one year.

A glance at the Table will show that there will be 962
deaths during the year. Hence, these people would find
it necessary to contribute a fund amounting to $962,000
($1,000 x 962). And the sum which each contributor would
have to pay would be $13.78; for $962,000 (the sum required)
divided equally among 69,804 persons (the number contribut-
ing) is $13.78.

($962,000 •*• 69,804 = $13.78.)

If it should be desired to insure the surviving members of
this body for another year, would the charge in each case be
the same as for the previous year?

No. The charge must be higher, the contributors will be
fewer and there will be a larger number of death claims to
pay.

The charge for each person for the second year must there-
fore be $14.54; for $1,001,000 must be paid, and that sum
divided among 68,842 persons would make the contribution
of each $14.54.

For a third year, $1,044,000 would be needed, and the
charge against each person would be still higher ($15.39) for
there would only be 67,841 contributors and the number of
deaths would be 1,044.

For the fourth year the rate would be $16.33, and for the
fifth year, $17.40.

XII. THREE WAYS OF CHARGING

14. Natural Premium

From the above, it will be seen that if insurance is paid
for from year to year, the cost will necessarily increase from
year to year.

When insurance is charged for in this way, we have what
is called the "natural ' ' method of charging. And each payment
which the policyholder must make is called the "natural"
premium.*

15. Single Premium

But experience proves that people do not like to pay for
their insurance on the "natural ' ' basis, because of the steadily
increasing charge. Consequently other methods have been
devised. One of these is to charge a single premium, so that
one sum payable in advance shall be sufficient to carry the
insurance until its maturity.

The correct single premium is that sum which if paid in
advance will be equivalent to the series of payments provided
for under the "natural" plan.

While all the companies are ready to issue insurance on the
single premium plan, few people are able or willing to thus
pay a large sum in advance.**

16. Level Premium

So the companies have devised a third plan. This is called
the "level premium" plan. It is so called because a rate
equivalent to the "natural ' ' rate, and to the "single premium, ' '

*Further explanations regarding this method of charging will be
found in § 304, but need not be considered at this time.

**Further explanations of the single premium are given in § 305, but
need not be considered at this time.

is framed in such a way that a uniform charge shall be
made — so that the premium shall be for the same amount
from year to year.

17. Popularity of the Level Premium

Substantially all the "regular" * life insurance companies
transact their business on the level premium basis. Con-
sequently, we must go more into detail in describing it. To
this end, the question of interest must now be taken up.

18. Interest

Even if the business could be conducted without expense
the mortality table would not by itself show the rates which
ought to be charged. This is because the table takes no
account of interest. But the premiums paid to the company
are invested and earn interest', so the company gives the
policyholder the benefit of interest. This slightly reduces the
rates derived from the Mortality Table.

Just here it should be noted that in computations of this
kind the actuaries assume that all premiums are paid at the
beginning of the year, and that death claims are not paid until
the end of the year. As a matter of fact, claims are paid from
time to time during the year as the policies mature. But in
computing premiums the policyholder is given the benefit of
the foregoing assumption. Any small deficiencies resulting
from this course are taken care of in providing for expenses.

But the exact amount of interest which the company will
earn in the future cannot be known in advance. Hence a
rate must be assumed. And as this assumed rate will apply
to contracts that may extend for many years into the future,
the rate must be conservative. There was a time when 5%
was assumed; at later dates, 4>^%, 4% and 3#% were employ-
ed. At present the rate most frequently adopted is 3%.

The "regular" companies are sometimes called "legal reserve"
companies or "old line" companies.

19. Pure Premium

As soon as interest has been deducted from the rate derived
from the Mortality Table we have what is called the Pure
Premium.

This is often called the net premium. But the word net is
ambiguous; for the policyholder regards the premium he pays,
less his dividend (refund) as the net rate. Hence, in this con-
nection, it is better to use the word "pure" than the word "net."

20. Gross Premium

Does the pure premium represent the sum a man must pay
who goes to a life insurance company for insurance? By no
means. No business of any kind can be transacted without
expense; consequently, the pure premium must be increased
by a "loading" to provide for expenses and contingencies.
When thus increased, we have the GROSS PREMIUM— the actual
sum which the policyholder must pay.

21. How is the Loading Determined?

Just as an insurance company cannot tell in advance what
rate of interest it will earn, so it cannot tell in advance exactly
what its expenses will be. But years of observation and
experience enable it to make a close estimate, in order that
the loading shall be adequate without being excessive. And
when the business is conducted on the "participating"
("mutual") basis, the policyholders suffer no permanent
injury even if the loading should be larger than is necessary,
for after they have received their dividends (refunds) they will
have obtained their insurance substantially at cost.

2 2 . Amount of the Gross Premium not all Important

The gross premium is usually obtained by adding a certain

percentage of the pure premium to the pure premium — that

*
26

is, to itself; (See §306 and §307). But the members of a "par-
ticipating' ' company should not be chiefly interested in getting
their insurance at the lowest possible rate. Their chief anxiety
should be to satisfy themselves that their company is charging
rates which are sufficiently high. This is because safety should
be their first consideration. And, as they are more like partners
than mere customers, it is better that the rate should be too
high than too low, since any excess payments will ultimately
be returned in the shape of REFUNDS.

23. Premiums Graded According to Age

All companies conducted on sound principles grade their
charges strictly according to age, as follows:

When premiums are paid on the "natural" basis
the amount of the first premium is determined by the
age of the policyholder at the time the insurance is
taken, and all subsequent premiums will increase
from year to year.

When the insurance is on the single premium plan,
the amount of the one payment is determined by the
age of the policyholder at the time the insurance is
taken, and that will end the transaction as far as
premium payments are concerned.

When the insurance is taken on the "level" basis,
the rate is determined by the age of the policyholder
when the insurance is taken, and the rate will remain
the same thereafter throughout the history of the
policy.

SECTIONS IN THE APPENDIX DEALING WITH PREMIUM RATES

The Natural Premium . . § 304.
The Single Premium ... § 305.
The Level Premium ... § 306.

XIII. THE RESERVE

24. Reserve.

We have seen that if insurance is paid for on the "natural"
basis the premium will necessarily increase from year to year.
It follows from this that if an equivalent level rate is charged,
that rate will necessarily be higher than the "natural" rate
during the policy's earlier years, and lower than the "natural"
rate later on. This being so, it is obvious that under the
level premium plan, the overpayments during the earlier
years must be held for the purpose of making up the deficiencies
in the later years. This is shown by the following table:

TABLE

The history of 1,000 Policies for $1,000 each, issued at Age 40, and extending over a
Period of 60 Years.

6 Periods
of
10 Years
each

Pure
Level
Premiums
Age 40

Death
Claims

Excess of
Premiums
over
Claims

Excess of
Claims
over
Premiums

Interest
earned

Reserve
at end of
each
Period

1st period. . .

$236,106

$106,000

$130,106

$28,311

$158,417

2d period . . .

205,745

152,000

53,745

72,373

284,535

3d period . . .

158,245

248,000

$89,755

95,193

289,973

4th period.

87,287

309,000

221,713

71,929

14 0,189

5th period

21,904

174,000

152,096

21,792

9,885

6th period .

520

11,000

10,480

595

Based on the American Experience Table and 3% interest

EXPLANATION OF FOREGOING TABLE

It will be seen from the above table that during the first
period of ten years the premiums have been sufficient to
pay all the death claims, leaving a surplus of $130,106. As
this surplus has not been needed to pay the death claims it
is obvious that it could be lost or wasted without resulting
in any immediate injury.

During the second period of ten years, the premiums have
also been sufficient to pay all the death claims, leaving a
surplus of $53,745. This surplus might also be lost or wasted
without immediate injury.

flB

But if this money should thus be wasted, disaster would
inevitably follow before the end of the third period; for the
premiums for that period are less than the death claims.

And during the three subsequent periods the premiums are
also less than the death claims.

From all this it is obvious that although the surplus funds
accumulated during the earlier years are not needed for the
time being, they will be needed later on. When, therefore,
the business is conducted on the level premium basis, the
company must accumulate a reserve fund, in order that it may
be able to meet its future, as well as its present, obligations.
This fund is called the "Insurance Reserve," or simply the
RESERVE.

The absolute necessity for an adequate RESERVE is illus-
trated in another way by the following diagram.

The reserve is a sacred fund which must be
guarded with the utmost vigilance; for if the
resources of a Company are so impaired as to eat
into the reserve, the Company will necessarily
become insolvent.

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XIV. ASSETS, LIABILITIES, RESERVE,
SURPLUS

25. Reserve Illustrated

To show just what the RESERVE is, let us examine some
of the items in the balance sheet issued at the end of the
year, by a company of moderate size, such as the Typical
Company.

ITEMS FROM THE BALANCE SHEET OF
THE TYPICAL LIFE INSURANCE COMPANY

ASSETS, December 31 $ 36,854,327.70

LIABILITIES

RESERVE $28,377,832.33

All other liabilities... 1,009,808.59 29,387,640.92

SURPLUS 7,466.686.78

INSURANCE IN FORCE, December 31 .$171, 556,895. 00

It will be inferred that the liabilities of an insurance
company will consist largely of insurance obligations. This
is true. And this truth is illustrated in the case of the Typical
Company whose liabilities consist almost altogether of the
RESERVE ($28,377,832.) which represents its insurance
obligations. As will be seen, the rest of its liabilities are a
comparatively small sum ($1,009,808.)

26. The. Reserve a present liability

But the novice who examines the foregoing items taken
from the balance sheet of the Typical Company will be
startled to observe that its RESERVE, ($28,377,832) increased
by its SURPLUS ($7,466,686) is all the money the company
has to pay its Insurance in Force, which amounts to
$171,556,895.

Naturally he will wonder how a large sum can be paid
out of a small sum — the latter in this case be'ng only one-
fifth part of the former. But the explanation is not far to
seek:

The RESERVE represents only the present insurance lia-
bility of the company. If all its policies should mature
immediately, this RESERVE would be altogether inadequate.
But all its po icies will not mature immediately: they will
fall due gradually as shown by any reliable mortality table.
Thus time will be given for the RESERVE to be increased
by interest and by the premiums policyholders will pay.
And thus increased, the RESERVE will pay all these policies
as they fall in.

DEFINITION

The RESERVE is that sum of money which,
increased by future interest and future premiums,
will be sufficient to pay all the outstanding
policies of the company, as they mature. .

27. Reserves on individual policies

We must carefully distinguish between the total RESERVE
and the reserves on individual policies. The total RESERVE
represents the fund needed to take care of all the policies,
and consists of the sum of the reserves credited to the indivi-
dual policies.

Just here it must be noted that the reserve on any given
policy may be either adequate or inadequate to take care
of that particular contract. If, for example, the Insured
dies before any substantial amount has beert accumulated,
the reserve in that case, if viewed independently of other
cases, might seem inadequate. But no injury will result
to the company, because the sum of the reserves on all the
policies will be adequate to take care of all the policies
taken in the mass.

28. Amount of Reserve

The chief duty of the Actuary of every company is to see
that an adequate RESERVE is maintained at all times, and the
most important duty of every Insurance Department is to
check off each Insurance company transacting business within
its jurisdiction, so as to be certain that this has been done.

The RESERVE is discovered by "valuing the policies";
that is to say actuarial computations are made to determine
the present obligations of the company under its outstand-
ing policies.

As long as a company maintains an adequate RESERVE its$
policyholders may be protected; for if the company should
deem it expedient to go out of business, or should be forced
to close its doors, the RESERVE would provide sufficient
money to re-insure its risks in another company. Hence,
the RESERVE has sometimes been called the "Re-insurance
Fund."

If the insurance company had no obligations except its
insurance obligations, the difference between its ASSETS and
its RESERVE would be its SURPLUS. And, as we have seen,
this comes near being the actual situation, because a properly
conducted company has, comparatively speaking, very few
other obligations. Nevertheless, any additional obligations
must be added to the RESERVE to determine the total LIA-
BILITIES. And if we wish to determine the exact amount of
the SURPLUS, we must deduct the total LIABILITIES from the
ASSETS.

29. Surplus.

If you will refer again to the Tytiical Company (§25) you
will see that if from the ASSETS amounting to $36,854,327.70
we deduct the LIABILITIES 29,387,640.92

we shall have the SURPLUS $7,466,686.78

Now all these surplus-assets of $7,466,686.78 could be
swept away, and the company would still be solvent — but
barely solvent. Hence SURPLUS is worth preserving; for a
barely solvent insurance company would obviously be in a
very precarious situation.

30. The need of surplus.

It is as essential for an insurance company to have an
adequate Surplus, as a bank, trust company, or any other
business organization. And for two reasons:

(a). To insure the stability of the company—
to guarantee adequate protection to its policy-
holders.

(b). To enable the company to pay REFUNDS
(dividends) to its policyholders.

The only fund from which REFUNDS can be paid legitimately
is the SURPLUS. This is because the rest of the company's
assets will be needed to meet its liabilities (the RESERVE to
meets its insurance obligations, and the remainder to pro-
vide for its miscellaneous obligations.)

Some companies break surplus up into separate items,
and call these items by other names; but, the actual surplus
can always be determined by applying the following
test: Any balance of assets over liabilities is surplus if
it can be used to repair losses or injuries to the company, or
can be apportioned to policyholders in the shape of REFUNDS.
It ceases to be surplus, even if still held by the company, as
soon as it has been appropriated to meet a definite obliga-
tion, or has been apportioned as REFUNDS on individual
policies.

If it is set aside to provide for some possible contingency
then it will be, so to speak, surplus with a string to it, and
will be called a "contingent liability."

XV. DIVIDENDS

31. Dividends

It is unfortunate that the payment made from SURPLUS to a
policyholder is called a "dividend." But no single word, or
short phrase, can be found to describe with absolute precision
what this so-called dividend is.

The most accurate name is "return premium." A shorter
and more convenient name is REFUND. But neither is suffi-
ciently comprehensive. Consider the policies of a company
conducted on the "participating" basis, on which level annual
premiums are being paid. These premiums, as we have seen,
are higher than is necessary. Consequently at the end of the
year when the company has determined the actual cost of
this insurance, the sum representing the unused portions of
the premiums paid will be transferred to SURPLUS. Then,
from this SURPLUS a sufficient sum will be set aside to pay
each of these policyholders a REFUND, the aim being to give
him (without impairing the stability of the company) a sum
which will so reduce the Gross Premium as to give him his
insurance at approximately cost price.

If this were all, it would be strictly accurate to describe
these dividends as "return premiums" or "refunds." But
there may be, and usually is, a slight addition resulting from
other savings or profits, and to that extent the payment is
an actual dividend.

32. How refunds may be utilized.

While it is true that a REFUND may be used as so much cash
to reduce the premium, it may be utilized in several other
ways.*

*As explained in § 99.

XVI. SOURCES OF SAVINGS AND PROFITS

33. What refunds consist of

The following are the sources of the savings and profits
of which REFUNDS are composed.

1. Mortality Savings. A company in computing its
premium rates assumes that the mortality among its policy-
holders will be no greater than is indicated by the mortality
table on which its premiums are based. But the actual
death rate may be lower than that indicated in the table.
If so, something will be saved.

2. Savings in Interest. Every company expects to earn,
and as a matter of fact does earn, a higher rate than it
assumes. If 3% is assumed, all receipts from interest over
and above that rate will be credited to SURPLUS.

3. Savings in Expenses. In the same way the company
assumes a certain rate of expense, and if by economy its
expenses are less than it has estimated, the saving will be
credited to SURPLUS.

4. Profits. All profits increase Surplus. If, for example
an investment has been made and is subsequently sold,
and if the price secured is higher than the price paid, there
will be a margin of profit which must be credited to SUR-
PLUS.

XVII. TAXATION
34. Taxing the savings of policyholders

It is well that when standard premium rates were estab-
lished many years ago, the companies added a sufficient
"loading" to the pure premium to provide for contingencies,
for at that time the insurance companies were not taxed, and
in fixing premium rates no specific provision was made for
taxes. It was observed that, as a rule the savings of the people
deposited in savings banks were exempted from taxation,
and it was natural to assume that the savings of the people
deposited with insurance companies would be exempted also.

Later on, however, insurance departments were established
in the various States to supervise the companies. That the
companies should be called upon to pay the legitimate ex-
penses of these departments was reasonable, and when
moderate taxes were imposed for that purpose, there were
no protests on the part of the companies. Usually these
taxes represented a small percentage of the Premium Income
of each company; and as the companies were not very large
the amount which each company was called upon to pay
was moderate. But as the companies grew, these taxes grew
until the burden became intolerably heavy.

WHY POLICYHOLDERS HAVE NOT PROTESTED

The reason policyholders have been apathetic about taxa-
tion is due to the strange popular delusion (which is not only
entertained by the public at large, but by many senators,
congressmen and state legislators) that the company can
be taxed without injuring the policyholder. But every penny
paid in taxes by a company conducted on the participating
plan reduces the Surplus of that company to that extent.
And every reduction in Surplus reduces the REFUNDS to
policyholders.

The reason policyholders have ignored this fact is that
their premiums have not been increased. They have not
been called upon to disburse any money. But the companies
have been forced to reduce their REFUNDS in order to pay
these taxes. Consequently, although the policyholders have
not paid these taxes directly, they have paid them indirectly.

It sometimes happens that a policyholder is disappointed
and complains that the REFUNDS paid to him have not been
as large as he expected; and as a rule such complaints have
been directed against the company and its management, and
not against those who are responsible for these taxes; namely,
the lawmakers who have levied them. In some cases policy-
holders who have complained have also been legislators who
have voted in favor of taxing life insurance companies, and

have thus been directly responsible for the fact that the
REFUNDS they have received have not increased more rapidly.
The remedy for this evil is in the education of the people,
in order that they shall send intelligent and well informed
men to Congress and to the State Legislatures — men who
will see clearly that the taxation of thrift is as shortsighted
as it is unjust.

When the people are thor-
oughly educated, our law-
makers will cease taxing thrift.

XVIII. IMPORTANCE OF A LOW DEATH

RATE

35. Medical examinations, why necessary

If the Law of Mortality indicates that people normally
situated die in accordance with a fixed law, why does the
company require each applicant to be examined by a physician
and pronounced a satisfactory risk before it will issue a policy
on his life? If the Law of Mortality is reliable, why the need
of these examinations? If some policyholders die prematurely
will not the result on the average be satisfactory whether
applicants have been examined or not?

This is a pertinent question and must be answered.

36. Insurance is not compulsory

If all the people were compelled to insure, or if they would
all apply voluntarily, medical examinations could be dis-
pensed with, because the Law of Mortality would then work
without interference.

37. Adverse selection

But no company can compel people to insure. It can only
insure those who apply. And if any company should announce
that it would accept every person who applied, healthy people
would remain away, and invalids, including those with
one foot in the grave, would flock to it. Thus what is called
"adverse selection" would saddle upon it a body of policy-
holders, who, instead of dying in accordance with the mortality
table, would die very much more rapidly.

38. Careful selection means profit

No skillfully managed company, moreover, is content to
have its death rate barely correspond with the mortality
table it employs. Its aim is to select its risks so carefully
that its death rate shall be lower than the rate assumed.
Success in this direction will have a twofold advantage:
the company will be stronger, and the cost to policyholders will
be reduced.

But it should be carefully noted that the medicai exam-
ination is not for the purpose of finding perfect human speci-
mens. The aim is simply to rule out invalids, and to prevent
fraudulent transactions. Nor is the examination the painful
ordeal that many sensitive people imagine. It is such an
examination as every prudent man should ask his family
physician to make from time to time for his own guidance.

XIX. THREE METHODS OF CONDUCTING
THE INSURANCE BUSINESS

Thus far life insurance as conducted on the participating
(mutual) basis has been described. But there are two other
recognized methods: One is the Non-participating (stock)
Plan. The other is the Mixed Plan.

The differences between the participating plan, and the
two other plans may be shown by a simple illustration:

ILLUSTRATION

If a party of travelers wished to take a European excursion
tney might proceed in any one of the following ways:

1. The party might form an association, each member
.ontributing his share of a general fund sufficiently large

to certainly pay the total cost of the trip, it being under-
stood that on the return of the party each one would receive
back his share of the amount left over.

That illustrates the mutual plan.

2. Or, the party might go to a responsible tourist agency,
and each member pay a fixed sum (representing a fairly
close approximation to the probable cost) with the under-
standing that if the cost of conducting the excursion should
be less than the aggregate sum deposited, the savings would
belong to the agency, and that if the cost should be more
than the aggregate deposited, the agency would stand the

loss.

That illustrates the slock plan.

3. Or, the party, instead of forming its own organization,
might pay their contributions to the agency, on the basis
of Plan 1, but with the understanding that the money left
over should be returned to the tourists less a certain per-
centage of the amount saved, which should be retained by
the agency.

That illustrates the mixed plan — a compromise between the
slock plan and the mutual plan, as its name suggests.

39. Mutual plan

When the business is conducted on the participating basis,
the policyholder becomes a sort of partner. That is not
his legal status, but the word roughly indicates his relation to
the organization. The company, if properly conducted, is
managed for the benefit of the policy holders exclusively. It

is true that they must pay premiums a little higher than
may be necessary, but the ultimate cost will be reduced by
REFUNDS.

40. Stock plan

Under the stock plan the company adds to the pure pre-
mium a very moderate loading, and sells its policies at the
fixed rate thus determined. It is assumed of course that
the rate will be adequate, or rather that it will be something
more than adequate, but not much more, because it is under-
stood that anything saved shall go to the stockholders and
not to the policyholders. The equity of this is obvious:
the shareholders of the company — its proprietors — guarantee
that if the premiums prove inadequate they must suffer the
loss; and to make this guarantee good, they must provide
their company with a stock capital (in addition to the assets
contributed by the policyholders) so that if during any year
the insurance costs more than they receive, they shall have
an adequate fund from which to make up the deficiency.
And as they take the chance of such a loss, their contention
is that they are entitled to any savings that may be made.
A'l this being so, it is obvious that the capital stock of such a
company ought to be large.

A company conducted on the participating plan needs no

capital, or if the law demands a capital, a merely nominal

amount will be adequate.

41. Mixed plan

A company conducted according to the "mixed" method
has a capital in addition to the assets contributed by policy-
holders. It offers its insurance on the participating plan.
The premium charged usually corresponds with that charged
by a mutual company, and dividends are similarly returned
to the policyholder. But the company does not agree to
pay all the divisible surplus to its policyholders; it reserves
a portion for the shareholders who are the owners of the capital .

stock. Thus it will be seen that the "mixed" company con-
ducts its business substantially on the mutual plan, although
only a part of the savings go to the policyholders.

42. The three methods compared

The chief arguments advanced by the advocates of these
three systems are as follows:

The advocates of the "participating" plan
commend it, (1) because of its safety, and
(2) because they claim that the ultimate cost
to policyholders will be, or ought to be, less
than under either of the other plans.

The advocates of the "non-participating"
plan contend (1) That people prefer to have
definite knowledge in advance of the exact
amount of each premium; (2) that as the
stockholders have risked a considerable amount
of their own money in the business they will
manage it with exceptional caution and energy;
and (3) that the moderate premium which the
policyholder must pay at the start will remain
unchanged throughout the history of the con-
tract.

The advocates of the "mixed" plan contend,
(1) That the government and control are as
definite and secure as in the case of the stock
company; (2) that the zeal of the shareholders
will insure so successful a management that,
after setting aside for themselves a percentage
of the profits, they will be able to pay policy-
holders a dividend nearly or quite as large as
could a purely mutual company, and (3) that the
capital stock provides additional security for
the policyholders

XX. RECAPITULATION OF THE TRUTHS
THUS FAR ESTABLISHED

43. Recapitualtion

We have seen that a life insurance company is an associa-
tion of members banded together for mutual advantage.

The company is managed by directors and officers, but
they act as the representatives of the policyholders. The
policyholders really constitute the company. Every member
pays a certain premium each year (the charge being larger
or smaller according to his age, the amount of insurance taken
and the kind of policy selected) and the payments made will
be adequate on the average, for, although some policyholders
will die soon and pay less, others will live longer and pay more.
Thus an aggregate sufficient to pay all the policies as they
mature will be contributed.

There is no guess-work about the conduct of this business.
It is founded on scientific principles, and its charges are
based on a knowledge of the approximate cost of assuming
life insurance risks of all kinds.

Premiums are graded in accordance with a fixed law, called
the LAW OF AVERAGE. This law, when applied to the dura-
tion of life is called the LAW OF MORTALITY, and tables of
mortality are constructed to illustrate the workings of this
law.

Premiums are computed as follows, (1) The proper charge
in each case is determined from the Mortality Table. Then
an allowance is made for interest, producing the pure premium.
Then a charge is made — that is, a "loading" is added to the
pure premium — for expenses and contingencies — producing
the gross premium.

The GROSS PREMIUM represents the correct price which the
policyholder must pay. Something more than is absolutely
necessary is charged in each case, in order that the company
may be permanently secure beyond all peradventure. But
if the business is conducted on the participating (mutual) plan,
the members will get their insurance substantially at cost,
because the company must restore to them, from time to
time in REFUNDS (dividends) such overpayments as they
have made. *

The fund consisting almost altogether of contributions from
members constitutes the ASSETS of the company. This fund
is invested and earns interest.

A large part of the ASSETS constitutes the RESERVE or
RE-INSURANCE FUND. This consists of those portions of
the premiums paid on policies while they are young which
are in excess of current needs, but which will be needed to
sustain the same policies when they grow older.

This RESERVE then, is the fund which (when increased by
future interest and future premiums) will be adequate to pay all
outstanding policies as they mature.

To this RESERVE must be added any miscellaneous obli-
gations in order to determine the total LIABILITIES.

And the difference between ASSETS and LIABILITIES is the
SURPLUS.

When the actual cost of carrying the risks has been deter-
mined, the unused portions of the premiums paid, are credited
to SURPLUS. And the SURPLUS of an insurance company
consists chiefly of these margins, but if there are other savings
or profits they will also be included.

The SURPLUS representing the company's extra or surplus
assets, is the fund from which REFUNDS (dividends) are paid

*If the business is conducted on the non-participating or mixed
basis, advantages of a different kind (as shown in §42) are secured.

to policy-holders — the only fund from which dividends can
be legitimately paid.

But the chief value of SURPLUS is that it insures the financial
strength of the company, protecting the members in case
of depreciation in the value of assets, or losses due to an
increase in expenses, excessive mortality, or waste of any
kind. Hence, although the company may, and does, pay
out surplus every year, it must never distribute all its surplus
It must keep a certain proportion on hand as a safety fund

When these computations have been made,
the exact financial condition of the company
is revealed.

If the liabilities exceed the assets then the
solvency of the company has been impaired.
If the liabilities are equal to the assets then the
company is barely solvent — it is in a position of
"tottering equilibrium." If the liabilities are
less than the assets, then there will be a surplus
and the financial strength of the company will
be measured by the amount of that surplus

These facts are of great importance, for they
indicate to the public that the strength of an
insurance company can be measured as accurate-
ly as that of a bank or trust company, and
that its financial condition can be shown as
clearly from year to year as that of any other
business organization.

4,6

THE LIFE INSURANCE COMPANY

HOW ITS BUSINESS IS CONDUCTED

The premiums quoted in this book
are the highest charged by any of
the " regular " companies. Some of
the companies charge a little less.

A life insurance company is simply an or-
ganization established to furnish the people
with thoroughly efficient life insurance of all
kinds. Such an organization is given cor-
porate form that it may have a permanent
existence, that it may be subject to protective
laws, and that it may be placed in charge of
directors and competent officials, in order
that its affairs may be administered with
absolute safety, expert skill, and the greatest
possible economy.

Every life insurance company is supported
by the people who avail themselves of its
services. As a matter of fact they are the
company, and although -it may not be man-
aged by them, it is, if properly conducted,
governed strictly in their interests.

XXI. WHAT A LIFE INSURANCE
COMPANY IS

44. What the company is not

If a man goes to a shop and buys a pound of tea, he is simply
a purchaser. Now, most people regard the insurance com-
pany as a great shop, and life insurance as a commodity which
they can purchase as they would buy packages of tea. This
misapprehension is strengthened by the circumstance that
of late it has been found convenient to call the insurance agent
a "salesman", and the applicant for insurance a "purchaser."
As a matter of fact, the agent is far more than an ordinary
salesman, and the applicant is more than a mere customer.
The agent is, or should be, the expert adviser of the man who
wants insurance. And the applicant may very properly be
called the agent's client.

It is the province of the agent to aid his client in securing
membership in an association maintained for the mutual
protection of its members. Then, the premiums which his
client will be required to pay from year to year after he be-
comes a member, will be, so-to-speak, his annual dues.

Another point : as soon as a purchaser has paid for his pound
of tea the transaction is at an end. But a policy is a contract
— an agreement between two parties, the company and the
policyholder — and this contract may extend over a long period
of years. Consequently, the policyholder will have a con-
tinuing interest in the company. He will suffer if the com-
pany is injured, and will be benefited if the company prospers.

The benefits of life insurance
should be enjoyed by the great
masses of the country — the men of
small means. I thoroughly believe
in life insurance.

William McKinley.

45. Why a corporation

It is true that this association is given corporate form.
But that is strictly in the interests of its members:

1. Because it places the organization under rigid insur-
ance laws, and under vigilant government supervision.

2. Because it gives permanence to the organization, so
that it shall not depend on the life of an individual, or on any
series of lives, but may be maintained in perpetuity.

3. Because the association, instead of being left to in-
experienced laymen, is thus placed under the manage-
ment of expert officials, who are charged with the responsi-
bility of conducting its affairs with efficiency and economy,
on a strictly business basis, for the ad vantage of its members
who contribute the money with which it is sustained, and
without whom it would be but an empty name.

Another advantage of such a corporation is that the man
who wants insurance is not forced to get up an association of
his own. He finds a company ready made, from which he can
obtain insurance of any kind for any desired amount. This
is possible because the company, if it has got beyond the ex-
perimental stage, already has a large body of policyholders of
all classes and ages. And although the applicant comes as an
individual he immediately becomes a member of a large body
of policyholders of his own class. Thus he does not interfere
with the smooth working of the Law of Average so essential to
the successful operation of every insurance organization.

46. Description of the insurance company

The insurance company has its headquarters at some central
point, where its business, separated into departments, is
conducted by a staff of officers and clerks. Thus the assets
are invested and guarded in the Financial Department;
premiums are computed, reserves are calculated, and risks are
measured in the Actuary's Department; agents are appointed
and directed in the Agency Department; applications for in-

surance are passed upon in the Medical Department; accounts
are kept, classified and checked in the Auditor's Department,
etc., etc.

But to understand the company as a whole, its Home Office
must be regarded as simply a part of a great organization; just
as the heart of a man is only a part of his body. We must
note that the company has branches all over the country, pre-
sided over by field commanders usually called "general agents"
or "managers," assisted in each case by a staff of field workers
called "soliciting agents."

XXII. HOW THE BUSINESS IS CONDUCTED

47. The agent

Any man may go to the office of a company for such in-
surance as he may want, but as the price he must pay will be
the same whether application is made directly or through an
intermediary, he usually delays action until some agent shows
him that he needs insurance, indicates how he can obtain it,
and saves him all trouble and annoyances in getting it.

48. The application

In such a case the agent will produce a printed blank called
the "Application," and when the spaces in this blank have been
filled in with the applicant's name, age,* the premium for the
kind and amount of insurance desired, and other necessary
particulars, the Applicant signs his name at the bottom, and
the agent witnesses his signature.

Then the applicant must have an interview with some
physician authorized by the company to make examinations
for it.

Then the Application and the Medical Examiner's Report
will go to the company, and if the Applicant is deemed a

*The age is determined by the nearest birthday. See § 105.

satisfactory "risk," the policy (i. e., the contract desired, of
which there is a. printed form simply needing to have the details
of the particular case filled in) will be "written" and sent to the
agent to be "delivered" to the Applicant in return for the first
premium. Thereupon the Applicant becomes the policy-
holder (or the Insured)*.

XXIII. INSURANCE IN COMMON USE

The companies issue many kinds of insurance to meet a
great variety of tastes and needs; but the bulk of their business
is done on three standard forms, the Ordinary Life, the Limited
Payment Life, and the Endowment.

ORDINARY LIFE POLICY

49. Ordinary Life Form

This contract provides that, in consideration of a certain
annual premium, which must be paid as long as the Insured
lives, the company will pay to the Beneficiary named in the
policy the amount of insurance agreed upon, on receipt of due
proof of the death of the Insured.

The Ordinary Life Policy grants the maximum amount of
permanent protection at the minimum annual rats. That
does not necessarily mean that the aggregate will be less
in the long run than the aggregate paid on a policy issued
on some other form. It simply means that the rate per
annum will be less.

50. Refunds

Usually this contract provides for annual REFUNDS, begin-
ning at the end of the first or second year, and continuing
until the maturity of the contract.

*If the Applicant is willing to pay the premium when he signs the
Application, he can thus protect himself against the dangers of delay;
for, in that case, if the Application is approved, the insurance will go
into effect immediately.

51. Agent's duties

Some people have the impression that the agent has nothing
to do but to write applications and deliver policies. This is a
very inadequate conception of his duties. It is true that he is not
a party to the contract between the company and the policy-
holder, but he brings the two parties to the contract together;
stands ready to render valuable services to the policyholder
as long as the contract remains in force, and will do all he can
to facilitate the prompt settlement of the policy as soon as it
matures. In this connection special attention is called to the
supplementary chapter on the Insurance Salesman. (§ 303)

52. Renewal premiums

Twelve months after the register date of the policy a second
premium falls due.* All premiums after the first are called
"renewal premiums."

If the second premium is duly paid the insurance will be
continued for a second year. If it is not paid, the policy will
lapse and the insurance will be forfeited. But the policy may
be restored if the policyholder continues to be a satisfactory
risk and is willing to pay the overdue premium with interest.

53. Premium notice

Before each renewal premium falls due, the company mails
to the Insured a "notice" that on such and such a date the
premium will be due, in order that he shall not overlook his
obligation to pay it. Formerly, such notices were sent volun-
tarily. Now it is one of the provisions of the Insurance Law
of each State.

*We are dealing with a contract under which premiums are payable
annually. The method of procedure is slightly modified when premiums
are payable in semi-annual or quarterly instalments.

54. Grace

Formerly it was necessary to pay the premium on or before
the date specified in the policy. Now it is customary to allow
a month's grace in the payment of each premium, subject to
a moderate interest charge. Usually, the company sends,
voluntarily, a second reminder before this grace expires if the
premium has not been paid. And if the agent does his full
duty he will do what he can to facilitate the maintenance of
the policy, or its restoration in the event of lapse.

55. Extension

If a policyholder finds that he will be unable to pay his
premium at the expiration of this grace, the company, on
written application filed in advance, may be willing to grant an
"extension," under which the policy will be kept in force,
subject to the payment of the premium with interest at the
end of a further period of moderate duration.

56. Dividend notice

If the contract is an annual dividend policy, and if the first
dividend is payable at the end of the first year, a notice of its
amount and the different ways in which it can be utilized is
sent by the company to the policyholder with his Premium
Notice. A similar notice is sent annually thereafter.

57. Surrender value

If the premium falling due at the end of the second year is
not paid, the policy will lapse and be forfeited . But at the end
of the third year the Insured will be entitled to a "surrender
value," either in cash, paid-up life insurance, or extended
term insurance.*

*The usages of different companies vary to some extent, but the rules
here stated are those in general use.

As the age of the policy increases, its surrender value in-
creases, as indicated in a Table embodied in the contract.

In the earlier years the cash surrender value is usually
the reserve on the policy less a moderate surrender charge.
Later on the entire reserve may be allowed.

The paid-up value is the amount of insurance which the
cash value used as a single premium will purchase.

When the third method of adjustment is selected, the
policy is continued for its full amount for a designated
period, at the end of which the insurance becomes extinct.

58. Policy loan

After a policy has been in force for three years or longer,
if the Insured is financially embarrassed, instead of surrender-
ing the contract, he can usually borrow, at a fair rate of inter-
est, a sum not in excess of the policy's cash surrender value
at the date of the transaction.

59. Caution regarding surrender values and loans

One of the first duties of the company, and of the agent, is
to explain to policyholders that insurance contracts cannot be
abandoned without sacrifice, and that while policy loans are
safe and remunerative as far as the company is concerned,
no man, unless driven by absolute necessity, should mortgage
his insurance.

It has often been stated that a life insurance company ought
to be the safest of business organizations because it assumes
the responsibility of guarding the savings of the people, and
protecting widows and orphans.

It is the safest of business organizations because its obliga-
tions are not affected by the fluctuations of the money market,
but mature in accordance with the Law of Mortality, which
works with the same regularity and deliberation during periods
of financial disturbance as at other times. The fact has been
emphasized, moreover, that in times of panic there can be no
devastating "run" upon a life insurance company, as in the

case ot a bank or trust company. While all this is true, it is
nevertheless a fact that the large surrender values and liberal
loans offered under modern life insurance contracts give policy-
holders the opportunity of making heavier demands upon the
companies than formerly. Hence the insuring public will
do well to recognize the indirect, as well as the direct, advan-
tage of holding fast to their insurance. In case of necessity,
a surrender value or a policy loan may be of advantage to the
individual policyholder. But the members of a company who
wish to consider their highest interests as a body, will see the
wisdom of seeking to check the tendency among heedless
people to sell or mortgage their insurance.

In this connection it may not be amiss to refer to a class of
insurance agents— most of whom have been driven out of the
business, but a few of whom remain. They are called "twist-
ers" because they advise people to exchange old policies in
one company for new insurance in another company. No
policy issued by a solvent company on which any premiums
have been paid, can be abandoned for new insurance without
sacrifice. Hence, any agent who recommends such a trans-
action disregards the true interests of his client in order to
secure some remuneration for placing the new insurance.

There are only two cases in which it is advantageous to
exchange old policies for new: (1) The man who has tempor-
ary insurance will do well to exchange it for permanent in-
surance. (2) When the insurance is in a company threatened
with insolvency, the Insured should endeavor to secure its
surrender value, and take new insurance in some stronger
organization.

60. Maturity

As will be explained hereafter, certain policies mature dur-
ing the lifetime of the Insured, while others do not mature until
after the death of the Insured. In the former case, the com-
pany settles with the Insured direct, or the agent attends to

the details of the transaction without charge. In the latter
case, the agent stands ready to relieve the Beneficiary of all
annoyance in effecting a prompt settlement of the claim.

A series of blanks are furnished by the company, called
"Proofs of Death," which must be filled up and executed by
the claimant, the attending physician, and others. As soon
as these documents, in complete form accompanied by the
policy and a "legal release," reach the company, its check for
the amount due is drawn, and forwarded, directly, or through
the agent, to the Beneficiary.

Formerly death claims were not payable until thirty or sixty
days after the receipt of these documents, but the modern
practice is to pay the claim immediately upon the receipt of due
proof of the death of the Insured.

61. Liberal provisions

As a rule the policy becomes incontestable after one year;
and, under most modern contracts, when the Insured resides
in a healthful region and his work is of a wholesome character
there are, no restrictions as to residence, travel or occupation.

LIMITED PAYMENT LIFE POLICY

62. Limited payment forms

As far as the Beneficiary is concerned, the Limited Payment
Life contract is exactly like the Ordinary Life contract; for
the insurance will not be paid until after the death of the In-
sured. The essential differences are in connection with pre-
mium payments.

There are five Limited Payment forms:
10 Payment Life Policy

15 "
20 "
25 "
30 "

On any one of these, as soon as the stipulated number of
premiums has been paid, the contract becomes "paid-up,"
and the Insured can put it away in his safe, and it need not be
touched again until it matures at his death.

The rate charged for a Limited Payment Life policy is
higher than for a corresponding Ordinary Life policy. (The
shorter the period within which premium payments are re-
stricted, the higher the rate, and vice versa.)

It is the general impression that Limited Payment policies
are "more expensive" than Ordinary Life policies. This is
not necessarily the case. It is true that the annual charge is
higher, but as the premiums cease after a certain period it is
obvious that the total outlay will be less if life is prolonged
than under the Ordinary Life form; for although each pre-
mium will be larger the number of premiums will be fewer.
It will be seen from this that the intelligent man who selects
the Ordinary Life form will do so, not because it will neces-
sarily be cheaper, but simply because the rate per annum—
the yearly disbursement — will be less of a strain on his annual
income.

PREMIUMS CHARGED FOR LIMITED PAYMENT INSURANCE

A higher charge is made under a Limited Payment con-
tract than under an Ordinary Life contract because:

All those who take Ordinary Life policies must pay pre-
miums on them as long as they live, and computations
based on a reliable mortality table indicate what the charge .
must be. But under Limited Payment contracts no pay-
ments are required after a certain period has elapsed.
Consider, for example, a group of 20 Payment Life policies.
The premiums charged must be the exact equivalent of
those that would be. charged on a similar group of Ordinary
Life policies. This is necessary because in either case the
same amount of insurance must be paid to the beneficiaries
in each group. But the 20-Payment Life policies provide
that none of the owners shall be required to pay anything
after they have paid premiums for 20 years. Many of

these policyholders will live longer, but their policies will
then have become "paid-up" and must thereafter be self-
sustaining. Now, as the premiums paid by all these people
are thus concentrated within a limited period, the share
which each must pay during that period must obviously be
larger than if the payments extended over the entire
lifetime of each contributor.

ORIGIN OF ENDOWMENT INSURANCE

The Endowment Policy is a combination of two other con-
tracts: the Term Policy and the Pure Endowment. These
are unimportant forms in themselves, but when combined
to form the Endowment policy, they have very great value.

In order that the Endowment Policy may be clearly under-
stood, it will be necessary, first, to describe the Term Policy,
then to describe the Pure Endowment, and then to show the
effect of combining these two contracts so as to produce the
Endowment Policy.

63. Term policy

Term Insurance is temporary insurance. For example, a
Term policy for $1,000 can be issued to run for any desired
period, such as 10 years. If the person whose life is insured
dies before the end of that period, the company must pay
$1,000. But if he is living at the end of the period the con-
tract will expire — the insurance will be at an end, and the
company will have nothing to pay.

The premium on a Term policy is small because the com-
pany's liability does not extend beyond the term agreed upon.

But the man needing temporary insurance, who can afford
to pay for permanent insurance, will act wisely if he selects the
latter kind; for such a policy also grants temporary protection
but it does not expire at the end of a term of years. It be-
comes an asset — a policy which will necessarily mature and
be paid some day.

The man who takes a Term policy thinking that he only
needs temporary protection, may find at the end of the
term that he has greater need for insurance than in the be-
ginning, and yet he may by that time have become an im
paired risk, and be unable to obtain insurance to replace
the term policy which will then expire.

64. Pure endowment

The Pure Endowment is the converse of the Term policy.
The contract runs for a given period of years. If the Insured
dies before the end of that period the company will have
nothing to pay, but if he is living when the period ends, the
company must pay the amount of the Endowment.

Any company will issue a Pure Endowment, but it is not
often applied for. It is chiefly utilized as one of the elements
in the Endowment Policy.

65. A term policy and a pure endowment

Consider the case of a man 35 years old who invests in a
10-year Term policy for $1 ,000. (Annual premium $14.50) .

Let us suppose that at the same time he invests in a 10-year
Pure Endowment for $1,000. (Annual premium $93.20.)

If the man dies within ten years, the company will pay
$1,000 under the Term contract, and the Pure Endowment
will expire. On the other hand, if he outlives the period of ten
years, the Term contract will expire and the company will
pay $1,000 under the Pure Endowment.

Thus, under one contract or the other, $1,000 will certainly
be paid, during, or at the end of, this ten year period.

But the man who wants protection of this kind is not com-
pelled to enter into two separate transactions. The company
combines them in one contract — an Endowment Policy—
and for that one contract charges a man of 35, for $1,000 of
insurance, $105.87, which is a little less than it would charge
for the two contracts issued separately.

ENDOWMENT INSURANCE

66. Endowment policy

We have seen that as far as the Beneficiary is concerned,
all "life" policies are alike. Under no form of "life" policy
is the insurance payable until after the death of the Insured.

The peculiarity of the Endowment Policy is that if the In-
sured is living at the end of a stipulated term of years, called
the "Endowment Period," the policy will mature, and the
money then due will be paid to the Beneficiary (usually the
Insured himself). Such a policy, however, is like a "life"
policy in this respect: if the Insured dies before the expiration
of the Endowment Period, the insurance will be paid immedi-
ately, just as if the policy had been issued as a "life" contract.

The charges for Endowment insurance are higher than for
"life" policies, because the premiums are limited to a stip-
ulated period of years, and because the insurance money
will be paid to the Insured himself if he is living at the end of
the Endowment Period, whereas if the contract were on a
"life" form the money would not be payable until after his
death, which might not occur for many years thereafter.*

Endowment insurance is attractive to those who wish not
only the protection of insurance, but who wish to lay some-
thing by for their own advantage in after life.

Those who wish insurance protection exclusively, prefer
Ordinary Life or Limited Payment Life insurance because the
rates are lower. There is, moreover, a danger connected with
Endowment insurance if taken for the protection of the family
or estate, which is avoided if a "life" policy is taken. It is
this: when the insurance money is paid by the company at the
maturity of the Endowment contract, there is the danger that

*An Endowment Policy may be drawn so as to run for either 5, 10,
15, 20, 25 or 30 years, or longer.

it will be spent or embarked in some business venture, and
that the protection of the insurance will thus be lost to the
family.

It is true that if the Insured is still in good health he can
convert the proceeds of the Endowment into paid-up "life"
insurance for an increased amount, or he can take a new
policy. But he cannot do either if he has become an im-
paired risk. And the rate for a new policy would be much
higher than for the original insurance, on account of the
increase in his age.

XXIV. INCOME INSURANCE

67. Life income policy

Many women are prudent and thrifty, but few have had
experience in the difficult and intricate business of investing
capital. And few women clearly appreciate the difference
between principal and interest — the distinction between capital
and the income produced by capital.

All this being so, it is not strange that when a widow re-
ceives a large amount of money from an insurance company,
she may be tempted to spend it instead of investing it, or may
invest it injudiciously.

It is an axiom among financial people, moreover, that it is
far easier to make money than to keep it — that anyone can
waste it, but that few can guard and invest it safely. This
is true of men as well as of women.

As the first aim of life insurance is to protect women and
children, it is fortunate that the companies are now able to
offer a form of policy under which the insurance money, in-
stead of being paid in a single sum, is disbursed by the com-
pany in the form of an annual income for life (payable if de-
sired in monthly instalments.) Thus the company in which
the husband has shown his confidence by depositing his sav-
ings while still alive, becomes his financial representative after

his death — when its services will be even more valuable than
when he was alive.

One admirable feature of this kind of insurance is that, in
general practice, the income is guaranteed for twenty years.

EXAMPLE

A husband (aged 35) can obtain an Income Policy on the
Ordinary Life form, in favor of his wife (aged 30) for an an-
nual premium of $580.80, which at his death will pay his
widow an annual income of $1,200. If she dies after re-
ceiving the income for a time, it will not be cut off, but will
be continued until payments have been made for twenty
years. Here the object is to support the children until
they reach an age when, presumably, they will be able to
take care of themselves. If, on the other hand, the widow
lives beyond the 20 year period, the income will be con-
tinued as an annuity as long thereafter as she lives.

The Life Income Policy is written on the Ordinary Life,
Limited Payment Life, and Endowment forms.

Under the Endowment form two lives may be protected.

EXAMPLE

If a husband takes such a policy in favor of his wife, and
if both are living at the end of the policy's Endowment
Period, the income will begin then, and continue during
the lifetime of the one who lives longest. If, on the other
hand, the husband should die before the expiration of the
Endowment period, the income will begin at once and be
paid to the widow for 20 years, or longer if she lives longer.

Get a policy, and then hold on to
it. It means self-respect, it means
that nobody will have to put some-
thing in a hat for you or your de-
pendent ones if you should be
snatched away from them.

Grover Cleveland.

XXV. SURVIVORSHIP POLICY
68. Survivorship annuity

The name of this contract is unfortunate. It is, strictly
speaking, an Ordinary Life policy and not an annuity. The
only excuse for its name is that upon the death of the Insured,
when the policy matures, the insurance will be paid to the
Beneficiary, not in one sum, but in the form of an annuity
for life. (Annuities are described in § 78.)

The Survivorship Annuity is really a life income policy, but
it differs materially from the policy bearing that name, de-
scribed in § 67. The difference can be most clearly shown
by considering an example.

EXAMPLE

A young man (aged 40) supports his wife (aged 30) and
also his mother (aged 60.)

For his wife he takes a Life Income Policy on the Ordi-
nary Life form, at a premium of $687.10. This will give
her, after his death, an income of $100 a month.

For his mother he takes a Survivorship Annuity because
her needs are not those of his wife. In her case $50 a
month will suffice as no children have to be provided for,
and because his sole object is to support his mother as long
as she lives. Hence a cheaper contract is desirable, and
the premium on a Survivorship Annuity to provide an
income of $50 a month, would be only $107.70. [A Life
Income Policy, providing an income of $50 a month for a
person 60 years old would cost $304.70.] Under this con-
tract, if the mother dies, the policy will thereupon expire.
This will do no harm because there will be no further need
for the protection: and this enables the company to charge
less than for a similar Income Policy.

Note, on the other hand, that if the wife should die, the
income on her policy will be continued until it has been
paid for twenty years, thus providing for the needs of her
children until they reach a self-supporting age.

RATES CHARGED FOR A LIFE INCOME
POLICY COMPARED WITH THOSE
CHARGED FOR A SURVIVOR-
SHIP ANNUITY

RATES COMPARED
For a Yearly Income of $100

Age of
Insured

Age of
Beneficiary

INCOME POLICY

(Ordinary Life
Form)

SURVIVORSHIP
ANNUITY
(An Ordinary
Life Policy)

Annual Premium

25
35
40
40
40
60
60

60
10
30
60
35
10
60
10

$33.10
41.86
48.40
50.78
55.38
67.20
119.76
173.88

$13.09
36.38
35.05
17.95
38.45
62.85
51.31
160.62

The willingness to take risks is in
the great merchant or capitalist a vir-
tue. It is to him what courage is to a
soldier or a statesman, or imagination
to a poet. But the willingness to take
risks is in the wage earner or the salary
earner a weakness, or in great excess, a
vice. The contrary of the vice of
gambling is in the virtue of thrift and
the system of life insurance has given
the thrifty man an opportunity of
practicing his virtue.

David Lloyd-George.

THIRD PART

INDUSTRIAL COMPANIES

Of all business organiza-
tions a life insurance com-
pany based on scientific
principles and prudently
conducted is the safest. This
is because its obligations
mature in accordance with
the Law of Mortality
which is uniform and delib-
erate in its workings, and
does not vary with the fluc-
tuations of the money mar-
ket, or the rise and fall of
stocks and bonds.

XXVI. INDUSTRIAL INSURANCE

69. Industrial companies

This kind of insurance is so named because it is designed for
the industrial classes— people who lack banking facilities and
cannot afford to make their payments annually, or even in
quarterly instalments.

This branch of the business is transacted by companies
organized expressly for the purpose of issuing this kind of in-
surance, or by companies having an industrial department.
The industrial business of several of the former companies is
very large. Such companies as a rule do an "ordinary"
business also.

The industrial companies are "regular" organizations,
transacting their business on sound principles, but under a
special system adapted to the character of the service rendered
to their policyholders.

Usually the policies are for small amounts, and the premiums
are paid, from week to week to agents who call at the homes
of the policyholders to collect them. The result of this sys-
tem is that the premiums charged for industrial insurance
are on a special scale, which differs from the rates for
"ordinary " insurance quoted in this book.

The industrial companies accomplish a great public service,
for they reach multitudes who need protection but who must
content themselves with policies for smaller amounts than the
ordinary companies are willing to issue.

It is not necessary to enlarge upon this
branch of the business ; for the explana-
tions in this book apply alike to ordinary
and industrial institutions.

LIFE INSURANCE IS IN

CERTAIN RESPECTS

UNIQUE.

Other kinds of insurance
provide for losses that may be
sustained. Life insurance
provides for an inevitable loss.

The premiums on other
kinds of insurance are an ex-
pense. The premiums on a
life policy are payments on ac-
count of an asset; for at some
time the policy must mature
and be paid.

Other kinds of insurance are
expedient: life insurance is
essential.

A building may never burn,
a ship may never sink, but all
men must die.

FOURTH PART

OTHER KINDS OF INSURANCE

THE POLICY FORMS ALREADY
DESCRIBED ARE AS FOLLOWS:

Ordinary Life Policy § 49

Limited Payment Life § 62

Term Policy § 63

Pure Endowment § 64

Endowment Policy § 66

Life Income Policy § 67

Survivorship Annuity § 68

XXVII. OTHER FORMS AND PLANS

Arranged alphabetically

70. Business insurance

Partners often insure their lives to protect their business
interests.

A corporation often insures the life of one or more of its
officers to offset the injury which would result if death should
deprive the organization of experience, expert skill, or capital.

Creditors often insure the lives of debtors.

Many persons take policies to protect mortgaged real es-
tate, or to safeguard their notes or collateral loans.

There are a great variety of ways in which the financial
interests of individuals, business firms, and corporations can
be safeguarded by means of life insurance, and such transac-
tions are placed under the general classification of "business
insurance."

71. Child's endowment

This is a special form of Pure Endowment. It is usually
taken by a father to provide for the education of a son, or to
start him in business; or to furnish a wedding portion for a
daughter.

It may be drawn so as to mature at any given age (usually
at either 18, 21, or 25).

The annual premium on a Child's Endowment of the ordi-
nary kind is very moderate, because the company will have
nothing to pay if the child dies prior to the maturity of the
contract.

But if the father is willing to pay a somewhat higher pre-
mium, the contract can be issued on what is known as the
"return premium" plan. (See § 75.)

EXAMPLE

For an annual premium of $36.79 a father can secure for
a daughter 1 year old, an Endowment of $1,000 payable
when she reaches the age of 21, the company having noth-
ing to pay in the event of the child's prior death.

But, if the father is willing to pay a higher rate ($40.98)
the company will, in the event of the death of the daughter
before reaching the age of 21, return the sum of the pre-
miums that have been paid.

If, for example, the daughter should die after the tenth
premium has been paid, the company would return the sum
of the payments made, namely $409.80. Or, if she should
die after all 20 premiums had been paid, but before the
completion of the 20th year, the return would be $819.60.

72. Group insurance

This is the name given to a plan under which the employer
of a large force of workers gives the protection of life insurance
to those under him.

In each case, the risk of insuring the entire group is accepted
subject to a careful inspection of the group as a whole, in place
of individual medical examinations.

A blanket policy covering the entire group is issued, and a
monthly premium (on the "yearly renewable term" basis*)
is paid by the employer

The insurance in each case may be for one year's pay, or for
any other moderate sum.

Manufacturing companies, railroads, express companies,
department stores, distributing companies, banks, trust com-
panies, and many other employers of labor are now availing
themselves of this plan for getting closer to their workers, and
rewarding them for steadfast and loyal service. In this way
multitudes of people who might otherwise know little or noth-
ing about insurance are brought under its protecting care.

*This is the pure Natural Premium increased by a small "loading"
for expenses and contingencies.

And in many instances these employes learn the wisdom of
supplementing the insurance furnished by their employers
by investing their own money in individual policies.

73. Instalment policy

The Income Policy described in § 67, provides for a series
of payments to the Beneficiary during a period of 20 years,
and the same payments as an annuity thereafter if the Bene-
ficiary survives. The Instalment Policy is a similar contract
but with the following important differences:

1. The policy is paid in any desired number of equal
annual instalments, from 5 to 50.

The sum of these instalments will always be a larger amount
than the face of an equivalent policy payable in one sum.
This is because the instalments will be increased by interest.

2. There is no annuity attachment to this contract, the
length of the benendary's life having nothing to do with the
transaction. The number of instalments agreed upon must
be paid, and as soon as the last has been paid the transaction
is at an end.

EXAMPLE

A policy yielding $1,000 if paid in one sum may be paid in
5 annual instalments of $212 each— Total $1,060. or in
30 " " " 49.53 " " 1,485.90, or in

50 " " " 37.73 " " 1,886.50.

The fewer the instalments the larger each payment will
be, and the smaller the aggregate will be.

The greater the number of instalments the smaller each
payment will be and the larger the aggregate will be.

The aggregate will be larger when the instalments are
many because more interest will be added if the payments
are spread over a long period than if restricted to a short
period.

The companies are always ready to settle a policy on the
instalment basis even if the contract provides for the payment
of the insurance in one sum.

74. Joint life policy

Two lives may be insured under one contract. In such a
case the ages of both persons must be considered so as to de-
termine the correct premium to charge.

If on a "life" form, the insurance will be paid when the first
death occurs. If an Endowment policy, it will be paid at the
end of the Endowment Period, or on the prior death of either
one of the two persons.

Such a policy is usually taken by a husband and wife, or by
partners in business.

Contracts of this kind may be issued on the lives of more
than two persons, but such transactions are unusual.

It is often found that, instead of a Joint-Life policy on the
lives of two or more persons, separate policies (one on each

life) are preferable.

75. Return premium policy

If the Insured is willing to pay a slightly increased rate,
his policy, if on one of the standard forms, can be drawn in
such a way that in the event of his death within a stipulated
period, the company will return to the Beneficiary all the
premiums that have been paid, in addition to the face of the
policy.

But how can a company afford to return all the money it
has received for carrying the risk? The answer is that it is
possible because the return is made only to the few who die
out of a large body of people most of whom will survive. Here
again the Law of Average comes into play. The company
agrees to make this return only in the cases where death in-
tervenes, while all the policyholders in the group, including
those who survive, must contribute to the fund from which
these payments are made. In other words, each policyholder
pays a small additional premium for additional insurance, the
amount of which will correspond with the aggregate paid in
premiums. Thus the policyholder "insures" his payments.

XXVIII. AN EXPERIMENT THAT FAILED

(Illustrating the fact that a company even if soundly
based cannot hope for permanent success if any of the
usages which have sapped the strength of so-called
"assessment" organizations, are adopted.)

76. "Natural" plan of charging unsuccessful

Some forty years ago an actuary of high scientific attain-
ments organized a company to transact the insurance business
on a plan based on the "natural" method of charging.

That company still exists, but it could not have lasted if it
had not changed its method of charging to the "level premium"
basis.

The reason for this is not because of any flaw in the "na-
tural" method. Theoretically that method is absolutely
sound. This experiment failed because of practical difficul-
ties.

The founder of the company undoubtedly reasoned as
follows:

"The average man during the earlier years of his
business career has a small income and no capital.
Nevertheless, he marries and raises a family. Obvi-
ously, his need for insurance is pressing. But he
cannot afford an adequate amount unless he can ob-
tain it at a very moderate rate. Hence, as the
'natural' premium is very small at the younger ages,
that is the basis on which he ought to insure. It is
true that the premium will increase, but presumably
his earnings will increase also, and he will then be
able to pay a larger premium."

All this is absolutely sound in theory, and ought to work in
practice; but experience has proven that it never has worked,
and in all probability (never will.

The investor in insurance of this kind finds that the charge
made in the beginning is very moderate. This will delight

him, and for a time the slight increase in his premium will not
disturb him. But as he grows older, the rate will increase
more rapidly, and it is probable that sooner or later (if he
retains his health) he will cast the burden off. If he does so,
others similarly situated will follow his example.

It is not to be expected that the rats on shore will board a
sinking vessel from which the ship-rats are scurrying. And a
company from which members are retiring in large numbers
cannot hope to induce many new members to come in. Thus,
such a company will lose a large proportion of its healthy mem-
bers and will run the risk of being ultimately swamped by
the preponderance of members whose health has become im-
paired.

Such difficulties are avoided when level premiums are
charged. In the first place, the policyholder learns that he
will suffer some loss if he retires. In the second place, as
there can never be any increase in his premium, there will be
no temptation on that score to withdraw.

It may seem inappropriate in an elementary treatise such
as this to go into these details, but from a practical point of
view this is the most important subject that the man who
wants to understand life insurance and judge of its merits can
study. Thus he can discover how to distinguish between
"regular" insurance and the protection offered by "fraternal"
and "assessment" societies. The latter organizations were, in
the beginning, based for the most part, on an inaccurate
and unscientific application of the "natural" method of
charging, or some modification of that method. And if a
company properly conducted on the natural basis (such as
the one referred to above) can achieve permanent success only
by changing its practice, it is obvious that an organization
conducted in an imperfect manner on that basis cannot hope
f«r lasting prosperity.

MANAGEMENT IS THE KEY-STONE
OF THE ARCH.— 0. W. Chapman

No life insurance company
founded on unscientific princi-
ples has ever achieved perma-
nent success.

Every company based on
scientific principles whose
business has been conducted
with prudence and efficiency,
has prospered.

Mismanagement will wreck
any business organization,
no matter how solid its foun-
dations.

Consequently the man who
wishes adequate protection
must select a company which
is (a) based on sound princi-
ples, and (b) conducted with
integrity, economy and effi-
ciency.

XXIX. FRATERNAL AND ASSESSMENT

INSURANCE

77. Fraternal and assessment societies

The kind of insurance offered by such organizations as
"fraternal" and "assessment" societies may be described as
the child of honest and deserving parents.* It sprang from
praiseworthy measures taken by social or benevolent organi-
zations to give the protection of insurance to their members
at moderate rates. But those who devised these plans were
not as a rule thoroughly familiar with the scientific principles
on which all sound life insurance rests.

They saw that during the earlier years of such an organiza-
tion, with most of its members still young, very moderate
charges would suffice to pay maturing death claims. So they
jumped to the conclusion that what could be done in the be-
ginning could be done all the way through. But of such
organizations those that have lasted for any length of time
have sooner or later seen the expediency of increasing
their charges. This has placed them in an embarrassing
dilemma. When they have failed to increase their charges,
their resources have been insufficient to meet their obligations.
When they have raised their rates, healthy members have be-
come dissatisfied and have retired, leaving an abnormal num-
ber of impaired risks, thus making the death rate excessive.
This explains the fact that hundreds of these assessment
societies, after flourishing for a time, have ceased to exist.

The only way to give lasting strength to such an organiza-
tion is to reorganize it on a sound foundation by adopting
adequate premium rates based on a reliable table of mortality
and. providing for the husbanding of the reserves produced by

*Assessment companies have sometimes been called "co-operative"
societies, but as all insurance is based on co-operation, it is unfortunate
that a defective kind of insurance should ever have been given so good a
name.

such adequate charges. But if this should be done the organi-
zation would become in effect a "regular" or "legal reserve"
company. But it would still be at a disadvantage, for it
would continue to be burdened with a large number of old
policy-holders who up to that time had been charged in-
adequate rates.

These criticisms relate chiefly to assessment organiza-
tions, for the fraternal societies have introduced reforms which
most of the assessment companies still hesitate to adopt.

Such stability as these organizations have enjoyed has
been due, for the most part, to incidental advantages such as
the following:

1. Although the charges have been moderate in the
beginning, the contract has always contained a clause
authorizing future increases. And usually societies that
have lasted for any length of time have been forced to take
advantage of this clause authorizing an increase in pre-
mium charges.

2. It has been usual to draw these contracts in such a
way that some portion of the claim may be withheld if the
payment of the whole would result in embarrassment. In
such a case the premium charge may have been very moder-
ate as compared with the amount of insurance offered,
but very high as compared with the amount actually paid.
When a "regular" company issues a policy offering in-
surance for a certain amount, that amount must be paid
in full.

3. These societies are frequently social organizations of
which the insurance feature is only of incidental import-
ance.

4. On the plea that these societies are benevolent organ
izations, they have escaped many of the rigid legal require-
ments which safeguard the operations of the regular com-
panies.

Organizations of this kind have usually failed in the long
run because they have tried to grant insurance protection at
less than cost. The futility of thus attempting to do the im-
possible is illustrated by the following diagram:

PI j

-p

_£l

S 2

EXPLANATION OF DIAGRAM

In the foregoing diagram, the dotted line is intended to represent the
premium on a policy issued by an assessment society at an assumed
rate of $23.

Please note carefully that this rate is an arbitrary assumption, and does
not indicate the actual premium which would be charged by one of these
societies. This rate has been selected simply to illustrate the fallacy of
that plan of insurance.

That plan is based on the knowledge that insurance can be granted
during the earlier years of each policy at a low rate. But the diagram
indicates that while a premium of $23 would be adequate for a time, it
demonstrates the fact that it would become altogether inadequate later
on. If a premium of $18.03 had been selected, the diagram would prove
the inadequacy of that rate after the first year. But starting with $23,
that rate is seen to be clearly adequate for several years. Later on it
becomes obviously inadequate.

Notwithstanding the fact that many of these societies have led the
policyholder to believe that his premium would not be increased, it has
been usual to insert in his policy a clause authorizing an increase in the
rate later on, if necessary. Now, let us see if a policy beginning with a
premium of $23 could be sustained if the rate should be increased from
time to time. In the diagram the dashes indicate an increase of 10%
at the end of the first five years, making the premium $25.30. Adding
another 10% to this rate at the end of the second five years, the premium
would be $27.83. For the next period the rate would be $30.61, and for
the next $33.67. The inadequacy of this is also obvious.

If 20% should be added at the end of every five years, the increasing
rate would be as follows: $27.60; $33.12; $39.74; $47.69. And even this
rate thus increased would be inadequate, for although during the last
period the charge would be a trifle more than sufficient for that period,
*he previous deficiencies would far outweigh that temporary advantage.

In short this diagram demonstrates the fact that the only adequate
level rate is $45.54; and that the only adequate increasing rate is one
beginning at $18.03 and advancing steadily from year to year, or a rate
increasing at longer intervals but equivalent to this annually increasing
rate.

There can be no doubt about this because the level premium and the
other premiums shown in the diagram are the pure rates; and illustrate
the actual cost to the company in each case. In each case the rate is
based on the same mortality table, with the same allowance for interest
(3%). If the gross premium had been used, the advocates of fraternal

and assessment insurance might contend that the higher charges of the
regular companies are due to higher expenses, and thus an element of
doubt would be introduced into the problem. Consequently, in this
comparison expenses are eliminated, and the different pure premiums
(all on precisely the same basis) are employed.

Most of the foregoing criticisms relate to methods that
have been followed in the past. Some of these societies have
already adopted adequate rates and are accumulating more or
less adequate reserves, and it is to be hoped that the lessons
taught by experience, and wholesome restrictions in amended
Insurance Laws, will result in reforms and improvements
which will enable all these organizations, especially the fra-
ternal societies, to offer absolutely sound life insurance. If so,
they can cover a broad field, and ought to be able to supply
the needs of large masses of people who have not as yet
been fully reached by the so-called "regular" companies.

EXTRA HAZARDOUS RISKS
ARE DEALT WITH IN §173.

FIFTH PART

ANNUITIES

DEFINITIONS

The person on whose life
an Annuity depends is the
Annuitant.

The amount which he pays
for the Annuity (the purchase
price) is the Consideration for
the Annuity.

The agreement under which
the transaction is carried out
is the Annuity Contract or
Annuity Policy.

The payments made by the
company to the Annuitant
(i. e., the income from the
investment) are the Annuity
Payments, or simply the An-
nuities.

XXX. AN ANNUITY THE CONVERSE OF
INSURANCE

78. Life annuity

Those who invest in Life Annuities are usually old men and
women without dependents; who are not engaged in any re-
munerative calling, and who have some capital invested in
ordinary securities which do not produce a sufficiently large
income to supply their needs. Such a capital if re-invested in
an Annuity will yield a much larger return.

EXAMPLE 1.

A woman 65 years of age, wholly dependent on a capital
of $15,000, has invested this capital in railroad bonds yield-
ing 4%. Her annual income is, therefore, only $600. But
if she should convert these bonds into cash, and re-invest
the money in a Life Annuity, it would yield an annual in-
come for life of $1,400.70.*

EXAMPLE 2.

A man of the same age who invests $15,000 in a Life
Annuity will receive an income a trifle larger than the
above, namely $1,538.10.**

NO MEDICAL EXAMINATION

In an annuity transaction a medical examination is super-
fluous, because the early death of the Annuitant would not
injure the company. A Life Annuity is the converse of a Life
Policy. The longer the Annuitant lives the more the com-
pany must pay. The longer the policyholder lives the more
he must pay.

*The highest rates now in common use are quoted here. Some com-
panies charge a little less.

**Experience indicates that the women who buy annuities live a little
longer on the average than the men who buy annuities. Hence the com-
pany in fixing its charges allows a slight advantage to male annuitants

79. Income from annuities

In the case of a policy, the younger the age the larger will be
the amount of insurance which a given premium will purchase.
In the case of an Annuity, the younger the age the smaller
will be the annuity which a given amount of capital will buy.

The following are examples of income, at different ages,
produced by a Life Annuity at the rates quoted in this book:

FOR MEN FOR WOMEN

At age 60 over 8K% At age 60 nearly 8%

" " 65 about 10K% " " 65 "

" " 70 nearly 12#% " " 70 "

" " 75 " 15K% " " 75 "

80. Life annuity rates

Correct annuity charges are derived from a mortality table
(not necessarily the table used in computing premiums on
policies) less an allowance for interest, and plus a moderate
loading to cover expenses and contingencies. In this con-
nection see the APPENDIX (§ 308).

Every mortality table, in giving the number of persons
who will die each year, necessarily shows also the number
who will be alive at the end of each year. And the problem
in the case of Annuities is to determine how long Annuitants
will live.

There are two ways of stating the charge for an Annuity:
(a) The price which must be paid for an income of a round
amount, such as $100. (b) The amount of the Annuity pay-
ments which a round amount of capital, such as $1,000, will
produce.

An Annuity is usually bought by the man or woman on whose life the
Annuity is to depend, but it may be bought by someone else, such as a
son for the support of a parent, a brother for a sister, an employer for a
faithful clerk or old family servant, etc.

CONDENSED TABLE OF GROSS CHARGES

FOR LIFE ANNUITIES

(MALES)

Based on the British Offices' Experience on Annuitants, with 3% interest

Price for $100 Annuity

Age at last
birthday

Annuity which $1000 will buy

$100
each
year

$50
each
half-year

$25
each
quarter

Annual
Annuity
Payment

Semi-
annual
Payment

Quarter-
ly Pay-
ment.

$2,326.20
2,129.00
1,852.70
1,521.60
1,157.70
801.10
546.80
489.50

$2,353.20
2,156.00
1,879.70
1,548.60
1,184.70
828.10
573.80
516.50

$2,366.70
2,169.50
1,893.20
1,562.10
1,198.20
841.60
587.30
530.00

21
30
40
50
60
70
80
85

$42.98
46.97
53.97
65.72
86.37
124.82
182.88
204.29

$21.24
23.19
26.59
32.28
42.20
60.37
87.13
96.80

$10.56
11.52
13.20
16.00
20.86
29.70
42.56
47.16

CONDENSED TABLE OF GROSS CHARGES
FOR LIFE ANNUITIES
(FEMALES)

Based on the British Offices' Experience on Annuitants, with 3% interest

Price for $100 Annuity

Age at last
birthday

Annuity which $1000 will buy

$100
each
year

$50
each
half-year

$25
each
quarter

Annual
Annuity
Payment

Semi-
Annual
Payment

Quarter-
ly Pay-
ment.

$2,328.40
2,141.90
1,891.90
1,607.70
1,267.50
878.30
603.50
504.80

$2,355.40
2,168.90
1,918.90
1,634.70
1,294.50
905.30
630.50
531.80

$2,368.90
2,182.40
1,932.40
1,648.20
1,308.00
918.80
644.00
545.30

21
30
40
50
60
70
80
85

$42.91
46.68
52.85
62.20
78.89
113.85
165.70
198.09

$21.22
23.05
26.05
30.58
38.62
55.23
79.30
94.02

$10.55
11.45
12.93
15.16
19.11
27.20
38.81
45.84

SEE NOTE 4, PAGE 144

81. Annuitants live long

Statistics prove that men and women who are supported by
pensions or by Annuities live longer on the average than other
people. There are two reasons for this, (1) Only those who
expect to live are willing to invest in Annuities, (2) The people
supported by Annuities are relieved of all worry and anxiety.
This tends to prolong their lives.

The examining physician of a prominent life insurance com-
pany states this truth with humorous exaggeration, as follows:

"An annuity is the best elixir of life. It sometimes seems as if annui-
tants never die. We have lots on our books who top eighty, ninety, and
even ninety-five years. The secret is that financial v/orry and fear of
the poorhouse ages and kills off more people than all the deadly diseases
combined. Release an old man by means of an annuity from all this
worry and he throws off his years and walks erect, happy and fearlessly
young."

One of the agents of another company, who has done a good
.business in placing annuities, says:

"Actuaries always look sad when you speak about annuities. They
say annuitants never die. And they do not — not as often as other people.
Our Actuary showed me a list the other day of living annuitants and their
ages, and it looked like a record of the thermometer in Arizona during a
hot spell."

82. Refund annuity

By increasing the charge, a Life Annuity can be issued on the
same piinciple as a "return premium" policy. (See §75).
In that case, on the death of the Annuitant, if the annuities-
returned by the company have been less in amount than the
price paid, the difference will be returned in cash, or the an-
nuities will be continued until they equal the purchase price.
Thus the return may be more, but can never be less, than the
sum invested.

OTHER KINDS OF ANNUITIES

83. Two-life annuity

A Two-Life Annuity is based on the lives of two persons,
and is payable as long as either survives. This form is ad-
vantageous for a man and wife who have no children, or whose
children are settled in life.

EXAMPLE

A man aged 55 whose wife is 50 can, for $18,337, obtain
an Annuity of this kind which will yield an income of $1,000,
to continue until the death of the one who lives longest.

84. Annuity-due*

Usually a Life Annuity Contract is so drawn that the first
payment of income to the Annuitant shall fall due at the end
of the first year, and be payable annually thereafter.

In consideration of a slight increase in price the Annuity
may be made payable in semi-annual or quarterly instal-
ments.

In the case of an Annuity-Due, the first payment of income
is made at the beginning, instead of at the end, of the first
year (i. e. immediately upon the purchase of the Annuity).
In other respects the Annuity-Due and the Life Annuity are
alike.

Annuities of this kind are constantly employed in Life in-
surance computations, but are seldom desired by the pur-
chasers of Annuities.

*Often called an Immediate Annuity, but the title "Annuity-Due" is
better because an ordinary Life Annuity is in some quarters called an
"Immediate Annuity."

85. Temporary annuity

A Life Annuity runs during the lifetime of the Annuitant.
A Temporary Annuity runs for a stipulated term, and then
expires.

EXAMPLE

A 10-year Temporary Annuity will expire after 10 annual
payments have been made to the Annuitant, unless termi-
nated by the death of the Annuitant before the expiration
of that term.

86. Annuity-certain

This is like a temporary annuity except that it is payable
during a stipulated term, whether the Annuitant lives or dies.

87. Perpetual annuity

This is like an Annuity-certain, except that the income is
not cut off at the end of a stipulated period, but is supposed to
continue in perpetuity.

88. Deferred annuity

Under an ordinary Life Annuity, as we have seen, the
income begins at the end of the first year. Under an Annuity-
Due the income begins at the beginning of the first year.

The income payable under a Deferred Annuity does not
begin until an interval of years has elapsed.

EXAMPLE

A man of 30 can take a Deferred Annuity under which the
income will begin at age 55. If he dies in the interim the
company will have nothing to pay; but if he survives he
will, on reaching age 55, receive an income much larger than
would be the case under a Life Annuity.

The charge for a Deferred Annuity depends on the age of
the Annuitant when the investment is made, and the length

of the period which will elapse before the income will begin.

Such an annuity can be paid for by depositing the entire
purchase price in advance, or by paying annual premiums (as
in the case of an insurance policy) from the date of purchase
to the date on which the annuity will begin.

EXAMPLE

A man 35 years of age who is earning a good income and
who wishes to lay something by from year to year during a
period of 20 years, so as to retire from business at age 55
can get a very large return for his savings if he invests them
in a Deferred Annuity. Thus if he should make an annual
payment to the company of $429, for 20 years, the invest-
ment will yield an annual life income of $1,000, payable in
semi-annual instalments of $500 each, the first payment
to begin six months after he reaches age 55.

I am a profound believer in life insurance for all
classes and conditions of men and women. Next to
the duty of securing salvation in the world to come
is the duty of men to secure life insurance in the
world that is here and now. Next to a good hope
for eternity is the comfort which comes to a man
from knowing that he has made provision by life
insurance for the support of his family in the event
of his own death. To do so seems to me a religious
obligation, an obligation often as binding upon
women as upon men.

Robert S. Me Arthur.

SERVICES RENDERED BY LIFE INSURANCE

Of all teachers of thrift, life insurance is the safest and best.

It not only provides a convenient plan for saving money,
but it enables a man to resist the temptation to spend what he
has saved.

It safeguards the savings of people of limited means.

It makes the safest and most economical provision for the
support of widows and orphans.

It makes the safest and most economical provision for the
declining years of business men and self-supporting women.

It is essential for the families of salaried and professional men
whose income will be cut off at their death.

It is essential for those lacking capital who spend all their
earnings to meet current expenses.

It gives a man time to accumulate capital if he lives, and pro-
vides that capital instantly if he happens to die.

It pays the current obligations of a man after his death, and
provides money for the immediate needs of his family.

When payable in the form of a life income, it provides, with-
out expense, after the death of the insured, a financial agent
to safeguard the future of the beneficiary.

It drives worry and care from a man's mind. It increases his
cheerfulness, and enhances his efficiency.

It strengthens a man's reputation for business judgment,
efficiency, foresight and prudence.

Life insurance is in effect an "insured" savings bank account.
Life insurance safeguards business and financial transactions.

(Continued on Page 96.)

SIXTH PART

VALUE OF LIFE INSURANCE

SERVICES RENDERED BY LIFE INSURANCE
(Continued from Page 94.)

Insurance money goes to the beneficiary without expense.

It enables a father to start a son on his business career, or
to provide a marriage portion for his daughter.

The young man who takes a policy instantly creates a capital,
which may form the nucleus of a substantial fortune.

The young man who insures, constrains himself to save, and
establishes a fund for the protection of his future family, or
for his own future comfort if he never marries.

Insurance protects the young man who has borrowed money
to complete his education — if he dies. It gives him remu-
nerative work, enabling him to pay his debt — if he lives.

The man who invests in insurance increases his self-reliance
and strengthens his credit.

It provides ready money for the settlement of an estate,
protecting it against shrinkage and loss.

If a man insures to protect his family, he safeguards his busi-
ness. If he insures to safeguard his business, he protects his
family.

It gives compensation for depreciation in the value of invest-
ments, or shrinkage in the income from investments.

It protects a home bought on the instalment plan.

It enables a man to borrow larger sums from his bank than
he could obtain otherwise.

It is utilized by men of wealth to offset the inheritance tax.

It provides for the payment of collateral loans, thus freeing
the collateral lodged to secure such loans.

(Continued on Page 110.)
96

The uncertainty of the life
of the individual makes life
insurance expedient.

The certainty of the life of
a multitude of individuals
makes it possible and safe.

XXXI. DEVELOPMENT AND SCOPE OF
LIFE INSURANCE

89. Development

Formerly the policies issued by the life insurance companies
were rigidly restricted contracts. Many things were specified
which the policyholder could not do, and many places were
designated which he could not visit. Death claims were not
paid until sixty or ninety days after the receipt of due proof
of death, and there were cases where claims were contested
or compromised on what would now be regarded as very
trivial grounds.

All this has been changed. The insurance contract has
been simplified and liberalized; collateral advantages have
been added, and flexibility has been given to its provisions
by permitting the Insured or the Beneficiary to select one of
a variety of methods of settlement at the maturity of the
policy.

The up-to-date policy becomes incontestable after one, or
two, years; is paid at maturity without delay, and the bene-
ficiary is given the benefit of the doubt in every doubtful
case.

90. Scope of insurance

In the early days life insurance was utilized almost exclu-
sively for the protection of the family. Today it serves a
multitude of useful purposes. This is illustrated by the
many policies and kinds of insurance described in this book,
and by the following examples.

VARIETY OF USES
Wealthy men and women invest their surplus funds in life insurance.

Benevolent people who wish to leave money to educational or charitable
institutions, but who do not wish to encroach upon the capital they
intend to leave to their heirs, insure their lives for the benefit of these
institutions.

Young men without dependents insure in order that they may thus
constrain themselves to save.

Business men and self-supporting women take Endowment insur-
ance, or Deferred Annuities, to provide for their declining years.

Fathers take policies to pay for the school and college education of
their children.

The members of a college class take insurance to provide a fund for
the benefit of their Alma Mater.

BUSINESS INSURANCE

Partners insure for the benefit of the firm; corporations insure the
lives of their officers to protect the organization against the loss of
influence, experience, expert skill, or capital, and Endowment insurance
is taken to provide sinking funds to protect issues of bonds, or to extin-
guish other financial obligations.

THE INSURING HABIT

Some years ago, upon the death of a prominent Philadelphian, it was
discovered that whenever he had started some new enterprise, he pro-
tected it with a policy on his life. His theory was that if he lived the
enterprise would succeed, but that if he died his widow might not be
able to develop it successfully. Consequently, the insurance was taken
to offset any shrinkage that might result. It was a wise precaution, for
he died suddenly and unexpectedly, and the insurance served the pur-
pose for which it had been taken. The insuring habit, as illustrated
in this case, is a habit well worth cultivating.

SOLVENCY AND REPUTATION

I know of a case where a young man saved not only his fortune, but
also his reputation, by insuring his life.

He had accumulated some capital, and was one of the junior officials
of a certain corporation.

His capital was embarked in an enterprise, which a trusted friend was
trying to develop.

This young official was sent away on a foreign mission, and while
absent, his trusted friend mismanaged his enterprise, and in trying to
save it from disaster borrowed money from certain financial institutions
on the strength of his associate's official connection with the corporation
of which he was the servant.

When the young official got back his capital was gone and his reputa-
tion was threatened. But he still had good credit, and got his personal
note discounted at the bank with which he dealt, and instantly paid off
the loans that had been improperly negotiated in his name.

He was anxious to liquidate the personal debt thus created as quickly
as possible, but he was afraid to suddenly change his mode of life lest
his credit should be impaired. At the same time he saw no way of paying
his debt quickly unless he ruthlessly cut down his expenses. He was in a
dilemma. And his anxiety was so great that he was in imminent danger of
breaking down; for he knew that if he died his family would be destitute.

A life insurance man solved his problem. He was still in the receipt
of an adequate salary, and was consequently able to insure his life for
an amount sufficient to pay his debt in the event of his death, and leave
something in addition for his widow.

But his life was spared, and he was given time to pay off his debt quietly
and gradually. After that he began saving again, and finally accumu-
lated as much capital as he had lost. Thus he doubled his estate, for
he was able to add his life insurance to the money he had saved.

INSURES WILLS

I know of another case where a man, after failing to make a satisfactory
will, was able to solve all his difficulties by means of life insurance.

He had accumulated a capital sufficient for the support of his wife and
daughter, and had drawn a will setting aside a definite sum to be placed
in trust for the daughter; leaving the residue of his estate to his wife.
But the market value of his investments began to show depreciation, and
he was disturbed by the thought that after the withdrawal of the trust
fund for his daughter very little might remain for his wife.

He had other grounds for dissatisfaction: he learned that the trust
C3mpany appointed to carry out the trust would be forced under the law
and its own rigid rules to sell his securities and re-invest the money in

municipal bonds or real estate mortgages that would yield a very low
rate of interest. He also knew that the income would be further re-
duced by the legitimate fees which the trust company would charge.
Thus he became altogether dissatisfied with his will, and was at a loss to
know how to proceed. But it so happened that he carried a substantial
amount of insurance on his life, and having told his perplexities to the
agent who had persuaded him to insure, he made the following adjust-
ment under that agent's guidance. He placed the greater part of his
life insurance in the name of his daughter, stipulating that the insurance
at maturity should be paid, not in one lump sum, but in the form of a
monthly income for life. He then tore up the will he had made, and
drew another, under which he left the whole of his invested property
and the balance of his life insurance, without any restrictions, to his wife.

When savings are put into life insurance, certain penalties and risks
are avoided. Insurance money for example, goes to the beneficiary
without impairment and without expense. No inheritance tax reduces
its amount, and no conflict of interest is likely to delay or threaten its
payment.

Wills are proverbially easy to break; and not long ago the will of the
chief justice of the highest court in Pennsylvania was set aside by his
former associates.

Lawyers as well as laymen are constantly making wills that fail to
carry out the wishes of the testator. And in many cases where the
testator's will is ultimately satisfied, long and expensive litigation inter-
venes, resulting in hardship and loss. On the other hand, the pro-
ceeds of a policy in favor of a relative, friend, employe, old servant,
or some other individual; or a policy to endow some religious, educa-
tional or charitable institution, will reach its destination without ques-
tion, deduction, or delay.

It is a truth of almost universal application that the man who has an
adequate amount of life insurance can draw a safe will and make a
satisfactory adjustment of all his affairs. It is equally true that the
man who has no insurance is usually beset by many perplexities when
he comes to draw his will. // is a sound maxim that every man should
consider his ivill and his life insurance in conjunction.

LIFE INTERESTS

The man who has a life interest in an estate can, by means of life insur-
ance, provide an income for the support of his dependents after the
income from the estate has been cut off. On the other hand the man
to whom an estate will revert if he outlives those who have a life interest
in the income produced by it, can, by means of life insurance, protect
the future of his family, or borrow money on his contingent interest in
the estate.

TOO

FOR COLLEGE STUDENTS

The following plan for teaching thrift and extending life insurance is
described by a young man who became an insurance solicitor shortly
after leaving college:

"I figured that most successful business men either carried
enough life insurance, or would naturally place additional
policies with old friends or business acquaintances. So I
determined to go after young fellows. I made out a list of
the wealthier students at Harvard and then called on their
fathers. I pointed out to the father that with school and col-
lege expenses he was making an investment in his boy of some
thousands of dollars. I then explained that the 'risk' should
be covered by insurance; the father to pay the premiums
while the boy was in college, and then turn the job over to
him when he entered business or professional life. This would
help develop in the young man the idea of thrift, and his insur-
ance taken out at such an early age would cost much less. Out
of the twenty-five men I talked with I wrote policies for sixteen,
and I am 'going to it' among other colleges when I get through
with my Harvard list. And I'll stick along with those fellows
after they get into business or professions."

PARTNERSHIPS

When a member of some business firm dies, if his life has been insured
for the benefit of the firm, many embarrassments may be avoided. If,
for example, his interest in the business reverts to his widow, the insurance
may aid the surviving partners in making a satisfactory settlement
with her. Otherwise the enterprise may be crippled in consequence of
the withdrawal of capital; or the widow may demand a full share of the
profits even if unable to aid in maintaining or developing the business.

CREDIT

The man who wants to borrow money from a bank finds it much
easier to make a satisfactory arrangement if he can offer life insurance in
addition to other collateral. Many banks demand insurance in such
cases. In addition to this the mercantile agencies and banks are begin-
ning to put questions about life insurance in the blanks they use to aid
them in determining the financial standing of business men.
PROTECTS THE HOME

Those who lend money to enable men of moderate means to build
or buy their own homes often require the borrower to provide a sufficient
amount of life insurance to discharge the mortgage in the event of pre-
mature death, on the theory that it is disagreeable to be compelled to
evict widows and orphans from their homes.

The purchasing power of money is steadily shrinking.
Consequently, many men who carry life insurance are taking
additional policies in order that their resources may corres-
pond with the increasing cost of living.

Sometimes a man, after accumulating a capital which he
has leemed sufficient to provide for the future support of his
family, finds that it has become inadequate in consequence
of depreciation in values or shrinkage in income. Such de-
ficiencies can be repaired by means of life insurance.

But the resources of most men die with them. Salaries
stop and earnings are cut off. The widow of the physician
cannot hold his patients, and the lawyer's clients seek new
counsel. In such cases, unless capital has been accumulated,
misery and want are the portion of the widows and orphans
who are not protected by life insurance.

91. Collateral benefits

The companies have become very liberal in extending
collateral advantages to their policyholders.

Many of the companies issue policies under which, if the Insured
becomes absolutely and permanently disabled, the further payment of
premiums will be waived. In some cases, the company pays the dis-
abled policyholder an income for life, without encroaching upon the
amount of insurance payable to the beneficiary after his death.

Some companies add an accident feature, stipulating that if death is the
result of an accident, double the amount of the insurance contracted for
shall be paid to the Beneficiary.

Many other examples might be cited, but enough has been
said to illustrate the fact that modern life insurance meets a
great variety of needs.

102

9 2 . Incidental Advantages

The full value of life insurance is not apparent if we con-
sider its direct benefits only. To these must be added many
incidental advantages.

The young man who takes a policy instantly becomes a capitalist.
And the capital thus created may be the germ of a successful career,
and form the nucleus of a substantial fortune.

The man who takes insurance for the protection of his family safe-
guards his business, and the man who protects his business by means
of life insurance benefits his family.

The man who carries an adequate amount of insurance gains confidence
in himself, and increases the facilities for extending his credit and develop-
ing his enterprises. He is relieved of worry and care. The cheerfulness
which ensues preserves his health and increases his efficiency.

Multitudes of men have testified that when ill the thought that they
had protected those dependent upon them by means of life insurance
has done them good like a medicine. And many of these men have
expressed the belief that their recovery has been largely due to the
peace of mind which this thought has given them.

Finally, life insurance is the most effective of all teachers
of thrift. It provides the easiest, safest, and best known
method of establishing and fostering the habit of saving.
In this connection the distinguished editor of The Outlook,
Dr. Lyman Abbott, has said.

"What many men count an objection to life insurance I
count its first advantage. It com pels thrift; it necessitates
saving; it puts the Insured under bonds to lay up a few
dollars every year to provide for the future."

It is our duty to live without anxious thought for
the morrow, and life insurance is a simple method of
setting the mind free from such anxious thought and
therefore should be adopted.

Charles Spurgeon.

103

93. Public Service

The benefits conferred on the public at large by life in-
surance are equally significant.

The small sums deposited by individual policyholders would in most
cases lie idle or be spent if they were not invested in life insurance. But
these small sums pouring in steady streams from all quarters into the
treasuries of the insurance companies form great aggregations of capital,
which must be prudently invested pending their disbursement in the
settlement df policy claims. And the investment of this money through-
out the length and breadth of the land is of enormous value to the people.
It helps to build railways; extends transportation facilities; furnishes
capital for the purchase of homes, and the erection of office buildings,
schoolhouses, hospitals, highways, bridges, water works, nitration
plants and other public utilities upon which the prosperity and com-
fort of our people largely depend. At the same time the Nation and
the State are relieved of intolerable burdens; for, as the protection of life
insurance is extended, fewer people are left dependent upon public
charity, and the necessity for building and maintaining asylums, poor-
houses, and jails is steadily lessened.

These axe some of the reasons why savings invested in
life insurance should not be preyed upon by National and
State governments. If it is right to exempt savings banks
from taxation, it is right that a part at least of the heavy taxes
now levied on the policyholders of our insurance companies
should be removed.

When I was a young man I took out two poli-
cies for my mother. One was for $2500, and the
other for $5000. I'm going to hold on to them.
That is the thing for everybody with somebody
dependent on him. Get a policy and then hold
on to it. It means self-respect, it means that
nobody will have to put something in a hat for
you or your dependent ones if you should be
snatched away from them.

Grover Cleveland.

94. How much insurance should a man carry?

It is seldom that a man's life is fully insured in the sense
that a building or a ship is fully insured.

A wealthy man may deem it wise to carry a large- amount of life
insurance, but he will not be likely to insure his life for its full value as
measured by his money-making ability.

Others may not be able to save enough from their incomes to fully
insure their lives.

Consequently, the man who carries as much as he can conveniently
pay for is not likely to carry too much.

Most men are inadequately insured. One reason for this is that they
fail to recognize the fact that the proceeds of a policy should be regarded
as capital to be invested, so that the family may be permanently sup-
ported by the income it can be made to produce.

Example: Consider the case of a man who has no capital,
and spends the greater part of an annual income of $6,000.
Assuming that of this income $3,000 is required for the
direct support of wife and children, and assuming further
that in the event of this man's death his family could,
by moving to the country and exercising the strictest
economy, get along on half that sum, it will be obvious that
he ought to carry at least $30,000 of insurance; for that
sum invested at 5% would yield only $1,500 a year.
Every prudent man whose life is insured should review his
situation from time to time; for, as his family and responsi-
bilities increase, he will be very likely to need additional insur-
ance.

Life insurance increases
the stability of the business
world, raises its moral tone
and puts a premium upon
those habits of thrift and
saving which are so essen-
tial to the welfare of the
people as a body.

Theodore Roosevelt.

95. The policyholder's right point of view

The premium on a fire or marine policy is an expense. If
the building does not burn, if the ship does not sink, there will
be no return. But this expense is regarded as not only desirable
but essential. Now, many people regard life insurance as
they view fire and marine insurance. They regard the pre-
miums as an expense, and something of a burden. This is
not the right point of view. The premiums paid on a life
insurance policy should be regarded as instalments of capital
entrusted to the insurance company for safekeeping. The
policyholder should realize the fact that if the policy is con-
tinued, it will necessarily mature and be paid, because what
is only a possible contingency in the case of a building or
ship, is a certainty in the case of a human being, since every
man must die.

If a man invests in a life insurance policy and dies prematurely, the
return will be so large in proportion to the small amount paid in premiums
that the advantage of the transaction will be obvious to the most casual
observer. But if life is prolonged, unthinking people may conclude that
the transaction will be unprofitable. This, again, is an erroneous point
of view. The man who liv~es long can have no previous knowledge of the
fact, and can well afford to pay for the protection furnished by life
insurance on that account, just as he would pay for his fire or marine
insurance. And here again the life insurance contract has an additional
advantage. It is true that the policyholder who lives long will pay more
for his insurance, but the rate per annum — the amount set aside to pay
for his insurance from his yearly income — will not be more. In addition
to this, he will be given time to develop his business enterprises, extend
his business, accumulate capital, and thus be able to place those de-
pendent upon him in a far stronger position than they would occupy
if his life had been cut short. When these advantages are added to the
certainty that the insurance will necessarily be paid at some time, the
value of the investment, even if life is prolonged, is obvious.

106

XXXII. POPULAR FALLACIES ABOUT
LIFE INSURANCE

96. Popular fallacies

Here are some of the mistakes that the uninitiated make
about life insurance.

That a man can insure himself. Insurance is based on averages,
but there is no such thing as an average of one.

That a man can take better care of his money than any insurance
company. Perhaps he can if he has exceptional opportunities and
unfailing judgment, and can guarantee the continuance of his own life
Otherwise, he had better turn to life insurance. No man has ever been
able to manage his estate after his death.

That a man can invest his money to greater advantage. Not if death
intervenes, or if he lacks broad experience and aptitude. Besides this,
few men save small sums, or invest them so as to make them earn interest.
But the insurance company consolidates in one large investment- fund
the small savings of many individuals, and thus has special facilities
for investing money advantageously, and of making it breed money.

That a man should put all his savings into his business. The object
of insurance is not to make, but to protect, money. Today the astute
business man not only protects his family, but safeguards his business,
by means of life insurance.

That a savings bank is better. Not if death intervenes, or if the
money deposited is withdrawn and wasted. It is an interesting fact that
at the present time banks and trust companies throughout the country
are inserting advertisements in the newspapers advising their depositors
to seek the protection of life insurance, and suggesting the establishment
of special accounts from which to pay insurance premiums. The most
enlightened men are taking advantage of the services of both banks
and life insurance companies.

That insurance is gambling. The contrary is true. The man who
does not insure is betting against death, and sooner or later his loved
ones will be the losers. Insurance removes the gambling element from
life.

That the interests of the company are antagonistic to these oj the policy-
holder. This is one of the most insidious of fallacies. The interests

107

of the company and those of its policyholders are identical. As a matter
of fact the policyholders form the company. Consequently, if the
company is injured they suffer and if the company prospers they are
benefited.

Thai insurance is costly. Insurance .s not an expense. It is a busi-
ness device for laying by for future use small sums saved from year to
year. Moreover, in the event of premature death the money which the
policyholder would have saved if he had lived and which he has been
prevented from saving is provided by the insurance company.

That all insurance is expensive. The premiums for certain kinds of
insurance are higher than for other kinds, but in any case the policy-
holder gets an equivalent for the premium he pays. Those who invest
in the policies for which charges are high do so because of the special
advantages that are secured. The charges for policies that grant insur-
ance protection exclusively are seen to be moderate when issued on the
non-participating plan, or on the participating plan if REFUNDS are
taken into consideration.

That people fail to insure because they are unwilling to pay. Men
are willing to pay for good bargains, and multitudes have testified that
their best bargains have been life insurance policies. Those who are
able to pay but are unwilling to do so are those who are ignorant of
the real value of insurance.

If it is true that "Uneasy lies the
head that wears a crown", it is still
more true that uneasy lies the head
of the uninsured. I remember the
night after I took my first policy, my
pillow seemed a little softer than
it had been before. The little ones
had begun to come in my family, and
I know the feeling of satisfaction
that came because I had done some-
thing for their protection.

Cyril Maude.

108

XXXIII. HOW TO SELECT A COMPANY
97. Only sound insurance is safe

Money set aside for the support of widows and orphans
should be invested with scrupulous care and discrimination.
Hence the man who invests in life insurance should choose
a company with as much care as a trustee selects investments
for trust funds.

He should choose a "regular" company, based on scientific principles,
and conducted with prudence and efficiency.

Every company publishes, from year to year, a financial statement,
and is compelled to file full details regarding its operations with the
Insurance Department of every State in which it transacts business.
The company's Reserve and Surplus, its receipts and expenditures, and
the volume and character of the risks carried, must be given, together
with schedules of its invested assets. These records are carefully
scrutinized by the various departments, and are issued in book form
in the Official Report published annually by each department. And the
department of the State under whose laws a particular company has been
incorporated must make an independent "valuation" of the company's
insurance obligations, from time to time, to determine whether or not
adequate reserves have been maintained.

In addition to this, every company that has been in business for any
length of time has a public reputation which may usually be relied upon
as a safe guide to men of ordinary intelligence.

To the question, "How shall we know what companies are sound and
well managed?" the late Henry Ward Beecher once replied:

"Just as you know what banks are good. By inquiring.
By using your common sense. Just as you find out a good
doctor, a good lawyer, a good school, a good hotel."

Insurance brings peace and prevents ruin to in-
numerable lives and homes.

Andrew Carnegie,

TOQ

SERVICES RENDERED BY LIFE INSURANCE
(Continued from Page 96.)

It protects partnership and corporate interests.

It protects new enterprises while they are being developed.

In certain cases it converts speculative ventures into legiti-
mate and safe business enterprises.

It enables a man to leave money to friends or public institu-
tions, without impairing the estate he leaves to his heirs.

It indemnifies a firm or corporation for the loss of capital
influence, experience or skill, resulting from the death of a
partner, officer, or important employe.

It enables an employer to reward his employes for steadfast
service by protecting those dependent on them.

It enables a firm or corporation to provide a sinking fund
for the payment at maturity of an issue of bonds, or for the
future liquidation of obligations of other kinds.

It protects mortgaged real estate. A "life" policy pays the
mortgage if the borrower dies. It gives him time to discharge
the obligation if he lives. ' An "endowment" policy pays off
the mortgage whether the borrower lives or dies.

It saves the lenders of money on real estate the painful duty
of evicting widows and orphans from their homes.

It aids a man in drawing a satisfactory will.
It is exempt from the inheritance tax.

It continues the income derived from a "life interest" in an
estate.

It protects the family of a man who will inherit an estate
upon the death of some person who has a "life interest" in it.

It enables a person who will inherit an estate as soon as a
"life interest" in it has expired, to borrow money to meet his
expenses meanwhile.

SEVENTH PART

TECHNICAL WORDS AND PHRASES

It is only fair under existing eco-
nomic conditions that at marriage
a husband should insure his life in
his wife's interest, and I do not think
it would be impossible to bring our
legal marriage contract into accord-
ance with modern ideas in that mat-
ter. Certainly it should be legally
imperative that at the birth of each
child a new policy upon its father's
life, as the income getter, should
begin. The latter provision at least
should be a normal condition of mar-
riage and one that a wife should
have power to enforce when pay-
ments fall away. With such safe-
guards and under such conditions,
marriage ceases to be a hapazard de-
pendence for a woman, and she may
live, teaching and rearing and free,
almost as though the co-operative
commonwealth had come.

H. G. Wells.

XXXIV. DEFINITIONS AND EXPLANA-
TIONS

98. Actuary. The Officer who deals with the mathe-
matical part of the business; computes premiums and other charges;
"values" the policies (thus determining the necessary reserves) apportions
REFUNDS (dividends); computes surrender values; aids in drawing up the
company's Annual Report; studies its mortality experience, and does
many other useful things.

99. Addition. The REFUND on a policy may be drawn

in cash, or deposited with the company at interest, or applied to the reduc-
tion of a premium, or used as a single premium to buy paid-up insurance
to increase the amount of the policy. When applied in the last way it is
called a "dividend addition," or simply an "addition."

100. Additional policy. Sometimes the agent, believ-
ing that his prospect ought to have more insurance than he has applied
for, asks the company to send an additional policy, on approval. If the
additional policy is accepted the agent does not deliver it until the pros-
pect has signed an Application for it, and has paid the first premium on it.

101. Admission of age. The company contracts to

pay the amount of insurance for which it has received compensation.
If after a man dies it becomes evident that his policy has been based on an
incorrect statement of his age, a readjustment will be necessary. So,
to avoid future trouble and confusion, the company stands ready to
"admit" the age of any policyholder when the po'icy is issued, or at any
time thereafter during his lifetime. That is to say, if the Insured will
submit reasonable evidence that his age has been correctly stated, the
company will "admit his age" — will agree that there shall be no dis-
pute on that score when the time for settlement arrives.

102. Admitted assets. The total Assets represent

Ihe total property of the company, but certain investments may not be
in accordance with the standards prescribed by the Insurance Law.
Hence, without regard to their value, such investments must be deducted
from the Assets in the financial report the company files with the In-
surance Department. Thus the company's "Admitted Assets" as dis-
tinguished from its total Assets are shown.

103. Admitted surplus. The difference between

"Admitted Assets" and the company's Liabilities (See §102.)

104. Adverse selection. If a company should offer
to restore all lapsed policies without re-examination, most of the healthy
people would remain away and most of those in ill health would apply
for restoration. In such a case the injury the company might suffer

would be due to "adverse selection."

105. Age. In all life insurance transactions the policy-
holder's age is determined by his nearest birthday, whether past or
future. (In the case of Annuities the age is determined hy the previous
birthday, an allowance being made for each elapsed quarter.)

Example: If a policy should be issued this year in February, on the life of a man
who was 33 years old last year, say on November 6th, and who will consequently be 34
this year on November 6th, the correct age of the insured will be 33, because his 33rd
birthday, although past, is nearer than his 34th birthday. But if the same man should
apply for another policy in July of the present year, it would be issued at age 34,
because by that time his 34th birthday, although still in the future, would be nearer
than his 33rd birthday.

106. Age limit. The company usually refuses to

insure those who have passed a certain age, known as the "age limit."

107. Agency manager. The field representative of a

company, usually in charge of a specified territory with jurisdiction over
a staff of "soliciting agents."

108. Agent. The representative of the company in the
field. The agent is sometimes called an "insurance salesman." He is the
intermediary between the company and the applicant. The applicant
is the agent's "customer" or "client." In a properly conducted company
the interests of the organization and the interests of the policyholder
are identical. Hence the agent is, or ought to be, the representative both
of the company and of his client — There should be no embarrassment.
or conflict of interests, as a result of this dual representation.

109. Agent's contract. The contract embodying the
terms of the agreement under which he is to work, and stating his com-
pensation for the services he renders.

114

110. Agent's responsibilities. (See §108.)

111. Alternate Policy. After a man has applied for a

policy of a certain kind, the agent may conclude that a policy of another
kind will fit the case better. In such a case the company may issue the
policy applied for, and also a policy of the other kind. If so, the latter
will be known as an "alternate policy." The agent must not deliver
both, but the applicant may accept and pay for either, and the one
rejected must be returned for cancellation.

112. American experience table. Title of the mor-
tality table used by the Insurance Department of the State of New York,
and by many other departments, and by many companies.

113. Annual statement. The financial report issued

at the end of every year by the company.

114. Annuitant. The person on whose life an Annuity

depends.

115. Annuity. (See §117. See also §78.)

116. Annuity-certain. An Annuity which runs for

a stipulated number of years and then terminates.

117. Annuity contract. The contract, or policy,

under which the company agrees to pay an income to the Annuitant.
The Annuitant is the person on whose life the Annuity depends. The
price which he pays is the "Consideration for the Annuity." The
Annuity Payments are the instalments of income paid to the Annuitant
by the company.

118. Annuity- due. An Annuity under which the

first annuity payment is due not at the end of the first year, but at the
beginning of the first year — at the moment the transaction is entered
into.

119. Applicant. The person who applies for insurance.

1 15

120. Application. The blank on which the Applicant
applies for insurance. It must be signed by the Applicant and witnessed.
Usually the Application and the Policy taken together form the contract.
But it is the usage with some companies to make the Application simply
the basis for the contract, in which case the Policy alone is the contract.
The report of the Medical Examiner may be made a part of the Applica-
tion, or may be regarded as a separate instrument.

121. Apportioning surplus. REFUNDS (dividends) are

paid from Surplus. When a sum of money is set aside for the purpose
of paying dividends to policyholders, it is referrred to as an "apportion-
ment of surplus." When a dividend is "declared" it becomes a definite
obligation.

122. Assessment insurance. (See §77.;

123. Assets. The capital, or property of the company.

It is not called "capital" because that word is used exclusively to describe
the Capital Stock of an insurance company.

124. Assurance. Synonymous with "insurance" when
applied to life insurance. Efforts have been made from time to time to
confine the use of the word "assurance" to life insurance, and the word
"insurance" to other kinds of insurance. But such attempts have never
succeeded.

125. Beneficiary. The person to whom the proceeds
of the policy are to be paid.

126. Binding receipt (or conditional receipt).

Some companies stipulate that if the Applicant pays the premium
when he signs the Application, the insurance will take effect imme-
diately if the risk is found by the company to be satisfactory. In
such a case the agent gives a "binding" or "conditional" receipt in
exchange for the premium.

127. Bonus. Synonymous with "dividend." Used

almost exclusively abroad. (See §31.)

116

128. Brokerage. When an agent's compensation is

limited to a percentage of the first premium it is called a "brokerage."
(See §138.)-

129. Business insurance. Insurance taken to safe-
guard some business transaction, or to protect a frm or corporation.

130 . Capital. (See §123.)

131. Cash Dividend. When a REFUND is drawn in cash

or used in part payment of a premium or left on deposit with the com-
pany at interest, it is called a "cash dividend". (See §99.)

132. Cash Value. When the company buys a policy for
cash, the amount payable is the "cash surrender value, "or the "cash
value". (See §287.)

133. Change of Beneficiary. Under modern policies it

is usual to give the Insured control over the contract during his lifetime,
under a clause permitting him to change the Beneficiary. But the
Insured can waive that privilege if he sees fit, and make the Beneficiary's
interest in the contract absolute.

134. Charges. In life insurance computations it is always

assumed that premiums are payable annually in advance. For example
the annual premium at age 35 for an Ordinary Life Policy for $1,000 is
$28.11; but if the Insured prefers, he can pay premiums semi-annually
($14.62 in advance and $14.62 at the end of six months). Or he can pay
it in quarterly instalments ($7.45 at the beginning of each quarter.) The
slight increase in the charge is to compensate the company for loss of
interest, additional labor, etc.

Note that the rate for small policies is the same as for large policies.
The rate for $1,000, as stated above, is $28. 11. For $10,000 of the same
kind of insurance the rate is ten times that sum, $281.10.

135. Charges Vary. If one company uses one mortality

table and another company uses another table, even if the same interest
standard is employed, there may be differences in the pure premiums;
but these differences will be trifling. More important differences ap-
pear in the gross premiums. This is because the "loading" added to the
pure premium by one company may be higher than the "loading" added
by another company. (See §20.)

The foregoing statement relates, of course, only to" regular "companies,
and to insurance issued on the same basis. The loading on policies

117

issued on the "participating" basis is higher than on policies issued on
the "non-participating" basis.

136. Child's Endowment. (See §71.)

137. Claim. When an Endowment matures it becomes a

"claim," and when any policy matures in consequence of death it be-
comes a "death claim."

138. Commission. When the agent's compensation is a
percentage of the first premium and a percentage of a certain number of
subsequent premiums, he is said to be remunerated on a "commission
basis."

139. Commissioner of Insurance. Or Superintendent

of Insurance. The government official at the head of an Insurance
Department.

140. Composition of Surplus. (See §33.)
Ml. Conditional Receipt. (See §126.)

142. Consideration for Annuity. The purchase price
of an Annuity.

143. Contested Claim. When a company refuses to pay
the insurance under a policy, it is referred to as a "contested claim."
The phrase usually indicates that the case is in litigation.

144. Continuous Instalment Policy. Another name
for Life Income Insurance.

145. Contract. A policy is often referred to as an "in-
surance contract," or simply as the "contract."

146. Contract of Insurance. Generally employed as a
synonym for "policy", although with many companies the entire con-
tract is the Application and Policy taken together.

147. Conversion Privilege. An Ordinary Life policy
may be converted into a Limited Payment Life form, or a Limited Pay-
ment Life policy may be converted into an Endowment, upon payment
of additional premiums for a stipulated number of years; or, by leaving
all REFUNDS to the credit of an Ordinary Life Policy, a sum will be grad-
ually accumulated which, together with the reserve on the policy, will

118

be sufficient to make the contract a paid-up policy. Similarly, the holder
of a Limited Payment Life Policy can convert it into an Endowment
policy. The right to make such a change is called a "conversion privi-
lege." The right to exchange a Term policy for one on a permanent
form is also referred to as a "conversion privilege."

148. Cooperative Insurance. (See §77.)

149. Corporate Policy. A form drawn expressly to

meet the requirements of a business corporation, and making the corpora-
tion the absolute owner of the policy.

150. Creditor's Policy. A policy taken by a creditor on

the life of a debtor.

151. Death Claim. The amount due under a policy on
the death of the Insured is called a "death claim." The phrase is also
used to describe the documents setting forth the claim.

152. Death Rate. The mortality experience of the com-
pany. Usually stated on a percentage basis.

153. Declaring a Dividend. The company may set
aside surplus from which REFUNDS may be paid to policyholders, but a
dividend is "declared" only when it is actually apportioned, and the
company has thus acknowledged its obligation to pay it.

154. Deferred Annuity. (See §88.)

155. Deferred Dividend. A dividend which is not pay-
able at once, but will be due at some future date.

156. Deferred Dividend Policy. A term used to des-
ignate a class of insurance (no longer issued in New York and certain
other states) under which dividends do not begin until the policy has
been in force for a stipulated period of years.

157. Deferred Premium. All life insurance is issued on

the theory that each premium will be paid annually in advance. But,
if desired, the contract may be drawn so that the premium shall be paid
in semi-annual or quarterly instalments in consideration of a slight in-
crease in the rate. In that case any part not payable in advance is
called a "deferred premium."

119

158. Delivery of Policy. A life insurance policy is so
drawn that it is the receipt for the first premium. When it is said that
a policy has been "delivered," it does not mean that it has simply been
handed to the Insured; it mean also that the premium has been paid
and the policy is in force.

159. Department Valuation. The actuary of every
company must value its policies every year, to determine the amount
of the RESERVE which the company must hold to protect the future of its
outstanding insurance. It is one of the duties of the Insurance Depart-
ment of the State under whose laws the company is organized to make
an independent valuation of its policies from time to time in order to be
sure that the company has actually set aside the requisite amount of

RESERVE.

160. Deposit. The annual payment made by the policy-
holder to the company is technically known as the "premium." But
the word "premium" has other meanings and is sometimes confusing
to laymen. Hence the word "deposit" is sometimes used as a synonym
for "premium."

161. Disability Privilege. Some companies, in consid-
eration of a small additional premium, insert a clause in some of their
policies, under which, if the Insured becomes totally and permanently
disabled, the further payment of premiums will be waived. Or the
company may go further and agree to pay the insurance in instalments
while the Insured is still living. These are called "disability privileges."

162. Dividend. A refund, or return premium. (See §31.)

163. Dividend Notice. When a dividend has been
declared on a policy the company usually sends the Insured a slip stating
the amount of the dividend, the date it is due, and the various ways in
which it may be utilized.

164. Dividend on Paid-up Insurance. The pre-
miums on a policy may cease before the maturity of the insurance. If so,
the annual dividends paid thereafter will drop. As there will be no
premium, there can be no premium return. Then the dividend will con-
sist only of interest savings and other small items of saving or profit.

165. Double Indemnity. (See §91.)

120

166. Endowment Period. The period at the end of

which an Endowment policy matures. Usually the premiums are pay-
able throughout the same period, but this is not necessarily the case. For
example, a 20-year Endowment may have a 15-year premium period.
If so, premiums must be paid for 15 years, after which the policy will be
"paid-up." But the insurance will not be paid until 5 years later (unless
the policy matures in consequence of prior death).

167. Endowment Policy. (See §66.)

168. Expectation of Life. (See §169.)

169. Expectation Table. By utilizing what is known as
the Mathematical Theory of Probabilities in connection with the Mor-
tality Table, actuaries have been able to frame expectation tables, such
as the one on the following page.

Those who are uninitiated often misread such a table. A novice may
hear, for example, that the "expectation of life" of a man 29 years old
is 36 years. And if that is his own age he may conclude that the table
predicts that he will live about 36 years longer. But the table indicates
nothing of the kind. Illness or accident may carry this man off in a
few days; or if he is exceptionally vigorous he may live to be 90, or even
100. The table makes no predictions regarding individuals. It gives
us simply the average duration of life of a large body of people normally
situated. For example, the sum of the years which 10,000 men all 29
years will live according to the table, will be approximately 360,000
years. This makes the average length of life of the people composing
this body, 36 years.

170. Expense savings. Premiums are based on an as-
sumed rate of expense. When the actual expenses are less than this as-
sumed rate, the difference represents the expense saving, which is credited
to SURPLUS, thus increasing the fund from which dividends to policy-
holders are paid.

171. Extended Term Insurance. When a policy is
sold to the company for its surrender value, that value may be repre-
sented (a) by so much cash, or (b) by a certain amount of paid-up in-
surance, or (c) the original policy may be extended for its full amount for
.1 limited term, at the expiration of which it will become extinct. This
last is known as "extended term insurance."

172. Extension. When a policyholder finds that he will be

unable to pay the premium when his grace expires, the company may,
on application before the date on which the grace will expire, extend

121

EXPECTATION TABLE

Based on the American Experience Table of Mortality .

Years

Expectation

Years

Expectation

Years

Expectation

Old

Years

Old

Years

Old

Years

48.7

28.2

8.5

48.1

27.5

8.0

47.4

26.7

7.6

46.8

26.0

7.1

46.2

25.3

6.7

45.5

24.5

6.3

44.9

23.8

5.9

44.2

23.1

5.5

43.5

22.4

5.1

42.9

21.6

4.8

42.2

20.9

4.4

41.5

20.2

4.1

40.9

19.5

3.7

40.2

18.8

3.4

39.5

18.1

3.1

38.8

17.4

2.8

38.1

16.7

2.5

37.4

16.1

2.2

36.7

15.4

1.9

36.0

14.7

1.7

35.3

14.1

1.4

34.6

13.5

1.2

33.9

12.9

1.0

33.2

12.3

32.5

11.7

31.8

11.1

31.1

10.5

30.4

10.0

29.6

9.5

28.9

69 9.0

the time of payment for a period of moderate length, in which case the
policyholder must at the end of the period of extension, pay the premium
with interest.

173. Extra hazard. A man who is engaged in a hazard-
ous employment or who resides or travels in an unhealthy region, is
considered an "extra hazardous" risk. A company will either refuse to
insure such a man, or will put him in a special class, or will charge him
an additional premium to cover the extra risk.

The regular charges of all life insurance companies are based on a mortal-
ity table which is supposed to represent approximately the rate at which
people normally situated will die. But if a company is willing to insure
people who are regarded as "extra hazardous" or "under average" risks,
the policyholders may be placed in a special class, so that if the death
rate is somewhat higher than the normal the deficiency can be made up
by reducing the REFUNDS.

Sometimes a company sees fit to go even further than this, and is willing
to insure a class of people who reveal some impairment in health, or are
exposed to some special risk. In such a case the company may add some-
thing to the premium. This may be done by basing the premium on a
mortality table whose figures have been increased by the addition of a
small percentage; or by charging a "rated-up" premium. This method
is often adopted in dealing with an individual. A company, for example,
may be unwilling to insure a man 35 years old at the regular rate, but
may be willing to "rate him up" three years, and charge the premium
designed for a man 38 years of age.

Some companies transacting business in very hot countries charge an
increased premium, known as a "tropical rate", and they may also
have a "semi-tropical rate" for intermediate regions.

174. Extra premium. An extra premium may be charged

for special benefits granted, or to provide for a special risk assumed.

175. Family history. When a man insures, he is asked

certain questions about the longevity of the members of his immediate
family, the causes of the death of relatives, etc. Such information is
referred to as his "family history."

176. First Year's premium. The first annual premium

is called the "first year's premium." Subsequent payments are called
"renewal premiums."

177. Forfeiture. If the premium on a policy is not paid,
the insurance lapses. If the lapse occurs before premiums for 3 (some

123

times 2) full years have been paid, it is the general rule among life insur-
ance companies to forfeit the insurance. But after three years the
policy becomes " non-forfeitable' '. That is to say, if the policy is aband-
oned the Insured is entitled to a surrender value in cash, paid-up insur-
ance, or extended term insurance.

178. Forms. A policy of a certain class is referred to as
being of such and such a "form," or as being such and such a "form of
policy."

179. Fraternal Insurance. (See §77.)

180. Fully insured. (See §94.)

181. General Agent. (See §107.)

182. Government of companies. A "purely mutual"
company is controlled by its policy holders; has no capital, and con-
ducts its business as a rule on the "participating" plan. A company
conducted on the "non-participating" plan is controlled by the owners
of its capital stock. A company conducted on the "mixed" plan is
controlled as a rule by the stockholders, although its policies are issued
on the "participating" plan.

In addition to this, there are companies that have a nominal capital,
whose insurance business is conducted on the mutual basis. Such a
company may be controlled by the stockholders, or by the stockholders
and policyholders jointly, or by the policyholders exclusively. The older
mutual companies are "purely mutual." But those organized in the
State of New York since an amendment to the law was adopted in 1853,
have been required to have a nominal capital of not less than $100,000,
without regard to whether the control of the company rests with the
owners of the capital, or with the policyholders.

183. Grace. It is the general rule among the companies
to allow a "grace," usually of one month, in the payment of premiums,
charging interest at a moderate rate, such as 5% if this privilege is taken
advantage of.

184. Gross premium. The premium actually charged—
the amount which the policy holder must pay. It is the premium de-
rived from the mortality table, reduced by an allowance for interest,
and increased by a "loading" for expenses and contingencies.

185. Group insurance. (See §72.)

186. Immediate Annuity. (See §84.)

124

187. Impaired risk. In general, any man who has lost

his health. Specifically, a man who has been pronounced a satisfactory
insurance risk but whose health has become impaired.

188. Income from Annuities. (See §79.)

189. Income Insurance. (See §67.)

190. Incontestability. In the beginning the company

usually reserves the right to correct errors in a policy, or to modify or
cancel the contract if fraud is detected. It is now the general usage,
however, to agree that, after a policy has been in force for one year (or
two), it shall be "incontestable"; that is to say, the company must
assume that the policy as drawn is correct, and agrees to pay it at ma-
turity without question, provided the premiums on it have been duly
paid.

191. Inspection. An applicant who is satisfactory
physically may not be acceptable to the company because of his
environment, habits, or lack of financial ability. The physical condition
of a man is determined by the medical examination. These other points
are covered by an investigation called an "inspection."

192. Instalment Insurance. (See §73.)

193. Insurable interest. The law assumes that the
Beneficiary under a policy will suffer some pecuniary loss upon the death
of the Insured. In other words, the Beneficiary is supposed to have an
"insurable interest" in the life of the Insured. This provision of the law
is to prevent gambling in lives — to prevent the issuance of policies to
persons whose death would be to the advantage of, and not a source of
injury to, the Beneficiary. But in order that the law shall not restrict
legitimate business, it has not been deemed necessary to impose minute
restrictions. It is assumed, for example, that an insurable interest exists
when the insurance is on the life of a relative, a business partner, or a
debtor.

194. Insurance defined. (See §3.)

195. Insurance Department. (See §34.)

196. Insurance in force. The total amount of insur-
ance outstanding at any given time on the books of the company.

125

197. Insured. The person on whose life the insurance

depends. (Also called the policy holder.) The Beneficiary is the person
to whom the insurance is to be paid. If desired, the Insured may be the
Beneficiary, that is to say, the proceeds of the policy may be made paya-
ble to him if living, or to his estate after his death. In some cases there
may be another party to the contract. For example, a creditor may se-
cure a policy under which the Insured is his debtor, in which case the
policy is made payable tc the creditor, or is assigned to him by the
Insured.

198. Interest savings. (See §33.)

199. Interest Standard. In determining premium
charges and policy reserves, a certain rate of interest must enter into
the computation. For example, if 3% is the rate the premiums are said
to.be on a 3% Standard. Similarly, we speak of a Reserve on the 3%
Standard.

200. Irregular premium. If insurance is taken, say in

January, and if the applicant wishes his annual premiums to fall due in
some other month, such as April, the company will, for his convenience,
charge an irregular premium to carry the insurance until the desired
date in April, after which the regular premium will fall due in April from
year to year.

201. Joint Life Policy. (See §74.)

202. Lapse. If the premium on a policy is not duly paid,
the insurance lapses. (See §52.)

203. Law of Average. (See §10.)

204. Law of Mortality (See §11.)

205 Legal Reserve Company. A "regular," or "old

line," company. These phrases are used to distinguish such companies
from the organizations which have been called "fraternal," "assess-
ment," or "cooperative" societies.

206. Level premium. (See §16.)

207. Liabilities. The total obligations of the company.

208. Life Annuity. An annuity which will continue
to be paid until the death of the Annuitant.

126

209. Life Income Insurance. Insurance payable, not

in one sum, but in the form of an income during the lifetime of the Bene-
ficiary.

210. Life insurance denned. (See §2.)

211. Life Policy. All policies issued by a life

insurance company are in a general sense life policies. The word "life"
is, however, used in a technical sense to describe a policy which runs
during the lifetime and does not mature until the death of the insured,
thus distinguishing it from Term Insurance which may expire, and from
Endowment insurance which may mature, while the Insured is still
living.

212. Limited Payment Policy. A policy on which

premiums are not payable for life, but are restricted to a certain period of
years. In such a case the policy does not necessarily mature when the
premiums cease. For example, a 20-Payment Life policy becomes
"paid-up" at the end of 20 years, but does not mature until the death
the insured. An Endownent policy usually matures when (he premiums
cease, but this is not necessarily the case. For example, an Endowment
may be issued under which premiums are payable during a period of 15
years, and the policy not mature until the end of 20 years.

213. Loading. (See §20.)

214. Loan value. The amount which the policy holder

can borrow from the company, on the assignment of his policy to the
company as collateral for the loan.

215. Maturity. When a policy is abandoned and its

surrender value is taken, the contract is surrendered but does not
"mature." The policy matures only at the time that its face value is
payable, at the end of a stipulated period or upon the death of the Insured.

216. Medical fee. Usually a company has examining

physicians at central points under salary. In other cases the physician
receives a "fee" for each examination made.

217. Medical Report. The blank filled up and sent by

f.he medical examiner to the company when an applicant for insurance
has been examined. This is the company's chief factor in determining
whether to accept the risk or not.

218. Mixed Plan. (See §41.)

127

219. Modes of Settlement. (See §274.)

220. Mortality Savings. (See §33.)

221. Mortality Table. (See §12.)

222. Mutual Plan. (See §39.)

223. Natural premium. (See §14.)

224. Net premium. (See §19.)

225. Non-forfeiture. During the first three years (in a
few instances two years) no return is made by the company if a policy
is allowed to lapse. In such a case the insurance is forfeited. But after
the policy has been in force for three years or longer, it will have a sur-
render value, and as soon as it has a surrender value it is referred to as
being "non-forfeitable."

226. Non-participating Plan. (See §40.)

227. Non-Participating Policy. A policy which does
not participate in the surplus of the company — a policy on which no
refunds (dividends) are paid.

228. N. T. O. Policy. Sometimes a policy is issued
and forwarded to an agent for delivery. If the applicant refuses to pay
for it, and if neither the company nor the agent attempts to hold him
to his agreement, the policy must be returned to the company for can-
cellation. Some companies call such a policy an N. T. O. (not taken out)
policy.

229. Office premium. Another name for the gross pre-
mium— the actual premium which the policyholder must pay.

230. Old Line Company. (See §17.)

231. One- Year Term Policy . A Term policy which runs
for one year only and then expires.

232. Options. When the policyholder or Beneficiary is
given a choice of several ways of utilizing a dividend, or settling a claim
the different methods are often referred to as "options."

233. Outstanding Insurance. (See §196.)

128

234. Paid-up Policy. A policy which is self-sustaining

either because a single premium has been paid in advance, or because all
the premiums provided for have been paid.

235. Paid-up value. If a running policy is surrendered

its cash value is the amount of money for which it can be sold to the
company. The paid-up value is the equivalent amount of insurance
which the company will be justified in granting in consideration of the
premiums already paid, if no further premium payments are to be made.

236. Participating plan. (See §39.)

237. Participating Policy. (See §39.)

238. Partnership insurance. Insurance taken to pro-
tect the members of a business firm against the death of one or more of
its members.

239. Permanent Insurance. Insurance which will ma-
ture and be paid, at the end of a stipulated period or upon the death of
the Insured; as distinguished from Term Insurance, which will expire
and become extinct at the end of the term agreed upon.

240. Permit. The instrument given by the company to a

policyholder authorizing him to engage in some occupation, or visit
some place not authorized under the policy contract.

241. Perpetual Annuity. (See §87.)

242. Policyholder. The person on whose life the insur-
ance depends. Technically known as the "insured."

243. Policy loan. A policy that has been in force for 3

(or in some cases 2) years or longer, usually has a "loan value." The
Insured can borrow from the company a sum not in excess of the cash
surrender value of the policy at the time, at a specified rate of interest.
The policy must be assigned to the company as collateral for the loan.

244. Preliminary Term Insurance. The man who

insures today may want his regular premium to fall due at a later date.
In such a case the company may be willing to carry the risk temporarily
at a term rate, with the understanding that at the expiration of such
temporary period, the regular tabular premium for the permanent form
selected shall become due.

129

245. Premium. The payment made by the Insured

to the company. Sometimes called a "deposit."

Insurance contracts are based on the assumption that the premium
will be paid annually in advance. The company is willing, however,
to receive payment in semi-annual or quarterly instalments, provided
the policyholder is willing to pay a little more to cover interest, cost
of collection, additional clerical work, etc. In such a case, the second
semi-annual instalment, or the second, third and fourth quarterly in-
stalments are called " deferred " premiums. If the Insured dies after
paying the first semi-annual instalment, or after paying from one to
three quarterly instalments, in any given year, the balance due for the
balance of the year is deducted from the death claim.

246. Premium Notice. The reminder required by law,

which is sent to the Insured, notifying him of the amount of his pre-
mium and the date on which it falls due.

247. Premium term. The period during which pre-
miums are payable under a Limited Payment Life or Endowment Policy.

248. Present Worth, or Present Value. If a certain
amount is payable at a certain future date, the present worth of that
sum is an amount which laid aside in advance and increased by interest
during the interval, will produce at that future date the exact amount
then due.

249. Privileges. In most policies certain benefits, or

special privileges, are embodied in the contract. These are often called
"privileges."

250. Proof of age. (See §101.)

251. Proprietary company. A company owned and

controlled by the owners of its capital stock.

252. Prospect. Any person who may reasonably be ex-
pected to invest in life insurance if properly solicited by the agent.

253. Province of Agent. The agent is not a party to

the insurance contract, which is an agreement between the company on
the one hand and the policyholder on the other; but he brings the parties
to the contract together and negotiates the transaction. He is the li-
censed representative of the company, and should represent it faithfully.
But as the interests of the company and its policyholders are identical,
he can without inconsistency, be, and ought to be, also the adviser and
representative of the policyholder.

130

254. Pure Endowment. (See §64.)

255. Pure premium. (See §19.)

256. Quarterly Premium. (See §134.)

257. Rated-Up Policy. A policy on which the pre-
mium charged is not at the Insured's true age, but which is "rated up,"
by making him pay the rate ordinarily charged for a man of older age.
(See §173.)

258. Reduction. The refund (dividend) paid on a policy

may be utilized in any one of a number of ways. When it is used as so
much cash to reduce the premium paid by the Insured, it is called a
"reduction."

259. Refund. (See §31.)

260. Regular Company. (See §205.)

261. Reinstatement. The company is usually willing to

revive a lapsed or surrendered policy, subject to the payment of back
premiums with interest together with a "certificate of health" from one
of its medical examiners. In certain cases a declaration from the Insured
may suffice.

262. Reinsurance Fund. (See §28.)

263. Renewal Commissions. When the agent of the

company is compensated for his services on a commission basis, the
amount paid him on the first premium is called the "first year's commis-
sion." Any commissions that may be paid on subsequent premiums
are called "renewal commissions."

264. Renewal premiums. All premiums, after the first,

payable on a policy.

265. Reserve. (See §26.)

266. Restoration. (See §261.)

267. Restrictions. If the policy does not authorize cer-
tain occupations, or if residence or travel in certain regions is prohibited,
or if the company does not wish to assume certain risks under the con-
tract, the clauses covering such points are called "restrictions."

131

268. Return-premium Policy. (See §75.)

269. Risk. In general any obligation assumed by a com-
pany is referred to as a "risk," but the policy-holder himself is also re-
ferred to as a "risk."

270. Salesman. The agent is sometimes called

an insurance salesman. (See §108.)

271. Semi-annual Premium. (See §134.)

272. Semi-tropical rates. Rates charged in regions

between those in which regular and tropical rates are charged. (See
§173 and §295.)

273. Separate classes. The categories into which dif-
ferent kinds of insurance, or different classes of policyholders, are sepa-
rated.

274. Settlement. Theoretically a premium is supposed

to be paid in cash, but sometimes the agent accepts a note for the whole
or a part of the premium. Instead of characterizing the transaction
as a payment, he refers to it as a "settlement." The payment of a policy
at its maturity is also referred to as a "settlement."

275. Simple Endowment. Or "Pure Endowment."

(See §64.)

276. Single premium. When one advance payment is

the whole consideration for a policy, it is called a "single premium."

277. Soliciting agent . The agent who induces a man to
insure and secures his signature to the application, is known as the
"solicting agent," to distinguish him from the general agent, or manager,
for whom he works. Nevertheless if the general agent, or manager
secures the application, he himself becomes the soliciting agent.

278. Sources of surplus. (See §29 and §33.)

279. Special Dividend Class. (See §173.)

280. Standard. The pure premium is based on figures

obtained from a mortality table, reduced by an allowance for interest.
If the interest rate employed is 4%, the standard on which premiums
are computed is said to be the 4% Standard; if 3%, the 3% Standard,
and so on.

132

The reserves accumulated on the policies of a company will be larger
or smaller, according to the rate of interest employed. If the rate is 4%,
the reserve is referred to as on the 4% Standard. If the rate is 3% the
corresponding RESERVE is on the 3% Standard.

281. Stock Plan. (See §40.)

282. Sub-standard insurance. (See §173.)

283. Superintendent of Insurance. (See §139.)

284. Supplementary contract. Some policies at

maturity are payable in the form of an annuity, or income, or in instal-
ments. In such a case the original policy is returned to the company
for cancellation, and a supplementary contract is issued, under which
the further provisions of the contract will be carried out.

285. Surplus. (See §29.)

286. Surrender. When a policy is sold to the company,

or exchanged for paid-up, or extended insurance, it is given up for its
"surrender value."

287. Surrender Value. The amount the company will

pay for a policy, either in cash, paid-up insurance or extended term in-
surance (See §132.)

288. Survivorship Annuity. (See §68.)

289. Table of Rates. Every company issues for the

guidance of its agents and the information of the public, tables containing
its premium charges for different kinds of insurance, for the ages at
which it is willing to issue policies.

290. Taxes. (See §34.)

291. Temporary Annuity. (See §85.)

292. Temporary insurance. (See §63.)

293. Term Policy. (See §63.)

294. Three per cent Reserve. (See §280.)

295. Tropical Rates. Special rates charged when

business is done in very hot countries. (See §173 and §272.)

133

296. Twenty A. P. Policy. (See §62.)

297. Twisting. If a man having a policy is induced to

abandon or surrender it for the purpose of taking a new policy the
transaction is referred to as "twisting."

298. Two-life Annuity. (See §83.)

299. Valuation. The computation made by a company,

or Insurance Department, to determine the proper RESERVE for the
company to hold. (See §28.)

300. Valuing policies. The process of determining the

Reserve of a company.

301. Waiver of Premium. Some policies are issued

under which, if the Insured becomes totally and permanently disabled,
he will be relieved of the payment of premiums thereafter. This is
called a "waiver of premiums."

302. Whole Life Policy. Another name for the Ordi-
nary Life Policy.

If the public in general
realized the value of life
insurance they would flock
to the insurance companies
as women besiege the bar-
gain counters of department
stores. But for the present
they await the agent who
shows them what they need
and how to obtain it.

134

SUPPLEMENTARY CHAPTER

THE INSURANCE SALESMAN

The agent is employed by a life insurance company
to sell its policies. In addition he becomes the repre-
sentative of those who buy these policies.

He need have no difficulty in maintaining his
loyalty to his company while showing himself to be
the friend and adviser of his client; for in every proper-
ly conducted insurance organization the interests of
the company, of the agents, and of the policyholders
are identical. Whatever is best for the company is
best for its policyholders who form the company.
And whatever is best for the policyholders will in the
long run always be most advantageous for the agents.

The agent can easily determine his legal status, but
this need not concern him if he is careful about his
moral status.

The agent is not a party to the contract between the
company and the policyholder, but he brings these
two parties together, and looks out for the interests
of the policyholder as long as his policy remains in
force.

His calling is as dignified and important as that of
any of the so-called learned professions, and if he is
conscientious he will never forget that his responsi-
bilities are many and serious.

135

XXXIV. THE INSURANCE SALESMAN.

303. Development of the Agent.

Nothing has been more striking in the recent development of
life insurance than the advances which have been made by the
workers in the field.

For a time after the life insurance business was taken up in
America, the usages of the British companies were slavishly
followed; but as the officials of the American companies
gained knowledge and experience, they began to think and
act for themselves, and an astonishingly rapid development
followed.

In view of these facts regarding the companies, it
is not to be wondered at that, in the beginning, many of
the field workers also lacked knowledge and training, and
that the public gathered false notions regarding their duties
and responsibilities. Nor is it surprising that these early
impressions have not been altogether removed from the minds
of those who have not closely followed the development of
American life insurance.

' But whatever may have been true in the early days, it is
now a fact that as a rule the representatives of the respon-
sible companies are men of standing in their several commu-
nities, and are serving the public with intelligence and
efficiency.

Restrictive Laws.

In addition to this, rigid Insurance Laws have been enacted,
and the agent must conduct his business in accordance with
these laws, or suffer the consequences. And only those who
are duly licensed by the Insurance Department of a particular
State can solicit insurance in that State.

136

Education.

The responsible companies now select their representatives
with the utmost care, and the National Association of Life
Underwriters, and the local State associations, composed
altogether of field men, are vigilant in the effort to drive from
their ranks those who are manifestly unworthy or incompetent .

The companies also are doing more and more from year to
year in educating their representatives. Instruction is given
at company headquarters, teachers are sent into the field,
and training is given by means of text books and correspon-
dence courses.

Some of the companies are now giving financial support
to the Bureau of Salesmanship Research of the Carnegie
Institute of Technology. And life insurance agents are join-
ing the salesmanship clubs that are springing up all over the
country, many of which have received the financial backing
of the companies represented by these agents.

But although much has been done, much remains to be
accomplished; for the ideal insurance salesman should be an
expert, thoroughly competent to give sound and appropriate
advice to all those who are in need of insurance for the pro-
tection of their families or to safeguard their business interests.
And he must render many other valuable services to those
who have taken insurance at his suggestion, as long as they
are identified with the company he represents.

The insurance salesman has high responsibilities, and if he
has had competent training and works wisely and well, it is
hardly too much to say that the services he will render his
fellow men will be as useful as the services rendered by the
representatives of the so-called learned professions; for al-
though a life insurance company is, in the strictest sense a
business organization, its work is nevertheless of a highly
beneficent and philanthropic character. At the same time,
no taint of charity attaches to it. On the contrary, it fosters

137

independence and self-reliance and helps the helpless without
degrading them by making them dependent on the generosity
of friends or strangers.

Characteristics of the good agent.

In conclusion it may not be uninteresting to attempt a
sketch of the ideal, up-to-date, life insurance salesman:

He must be of good reputation. The coiner of counterfeit money, and the
promoter of get-rich-quick swindles, cannot afford to be honest. But,
with such exceptions, honesty is the best policy in all callings, and it is
doubly important in the case of the insurance salesman. The reason for
this is not far to seek: the average man knows very little about life
insurance, and is fully conscious of his ignorance. He believes, on the
other hand, that the insurance salesman is an expert, and that he can
easily fool him if he wishes to do so. Consequently, unless the agent
wins his confidence, he will hesitate to follow the advice given. Nor is
this all: the agent must win the confidence of his client in behalf of the
company he represents. To this end he must present a neat and pros-
perous appearance; for his company will be judged by him, and if he is
shabby and down-at-heel, the strength and prosperity of his company
may be questioned.

He must also remember that the surest way to gain a reputation for
trustworthiness is to have an exemplary character.

He must have self-reliance. But the agent will not profit by the con-
fidence of his client unless he has confidence in himself; and even then
he will accomplish nothing unless he turns his confidence in himself to
practical advantage. He must exercise determination. If his will is
stronger than that of the man to whose judgment he is making his appeal
he will succeed. And even if the other man's will is stronger than his, he
will succeed if his will is not opposed.

He must be industrious. The life insurance salesman is in a hard
business, and he cannot hope to succeed unless he works, and works hard.
At the same time he must work wisely and well. If he blunders, his
work may do more harm than good. Some of the busiest people in
the world never accomplish anything worth while.

He must have patience. Like the golfer, he must "follow through."
His time will be wasted if he merely interests people in life insurance,
or convinces them that they need it, or even implants in their minds a
desire to possess it. He must induce them to act.

138

He "must lay aside every weight, and run with patience the race"
in which no prizes are ever won by those who drop by the way. He
must have a definite aim and follow it through to the end.

He must exercise economy. He must exercise careful thrift both in
connection with his business, and in regulating his personal expenses;
for if he is beset by anxieties and fears about financial matters, his courage
will evaporate and failure will be inevitable.

And as "time is money," he must spend his time with the utmost
economy and care. As he is not tied down to office hours or office rules,
he will be constantly tempted to waste this time-money. On the other
hand, the character of his work is such that he needs every moment of
the time he can spare from the hours necessarily devoted to eating,
sleeping and resting; for in mapping out his work, going from place to
place, and waiting for interviews, some of his time will necessarily be
wasted.

The best safeguard against waste of time is system, provided it is
simple, compact, and diligently followed.

He must be mentally alert. People may be divided into three classes:

Those who have brains and use them.
Those who have brains but don't use them.
Those who are without brains.

The second of these classes is the largest of the three, and any insurance
salesman who finds himself in that class will do well to get out of it, and
into the first class, as quickly as possible.

He must exercise common sense. Nothing is to be gained by urging the
blind to see, or the deaf to hear. And as commom sense is the intuitive
faculty — the knowledge of those things which we ought to recognize
without being told — the man who is wholly lacking in common sense
is to be pitied rather than censured. But the difficulty in most cases is
that those who have this faculty fail to cultivate and develop it.

He must have tact. Common sense tells a man what to do, and tact
tells him how to do it. Tact enables him to advise another without
irritating him; to reprove him without offending him; to draw him
without letting him know that he is being led. Tact should be diligently
cultivated by every man who hopes to succeed as an insurance salesman.

He must be optimistic. He must be cheerful, hopeful, and encouraging.
He must offer life insurance, not death insurance. He must frame every
proposition in such a way that it will appeal to the man who expects to
live.

139

He must exercise self control. He must always be cool and collected.
He must never permit himself to become irritated, no matter how un-
reasonable or aggravating those with whom he has to deal may be.

He must be a judge of character. He must know himself and study the
minds of those with whom he has to deal. If he learns to read character,
he will succeed. Otherwise he will form false judgments in consequence
of his indifference or lack of attention.

He must have imagination. If he has imagination, he will be able to
put himself in his client's place; be what he is, feel what he feels. He
will know what will please and what will displease him. He will then
be like the great actor who becomes in turn a king, a peasant, a millionaire,
a day laborer. He will know intuitively what will appeal to the tastes of
people of all stations and temperaments; and his imagination will aid
him in making a striking, original, picturesque, attractive appeal in every
instance.

He must be direct and clear. He must carefully adapt his statements
to the knowledge and intelligence of those whom he wishes to convince.
He must avoid technical phrases, and deliver his message in clear, simple
and direct language. He must avoid the capital blunder of talking too
much, and must also be a good listener.

He must have an insurance education. He must understand life insur-
ance, know the company he represents, and be familiar with all the policies
it offers, in order that he may in every case fit the contract to the needs
of his client. And in order that his advice may be sound and appropriate,
he must gather in advance all the information he can about each customer.

He must be prepared to give intelligent answers to all questions, but
although he must know it all, he must not tell all he knows. As a rule a
client will want to know only three things:

What insurance will do for him.
What policy will fit his case.
What that policy will cost.

There is another and an equally important reason why the insurance
salesman should be thoroughly posted. It is this: If he knows of his own
knowledge that life insurance is founded on scientific principles, is abso-
lutely safe, and altogether efficient, his own convictions will be so
strong that he will have little difficulty in convincing others.

He must render genuine service. His primary duties will always be to
explain the dangers of delay, to persuade people to insure, to show
them what they need, and then to aid them in obtaining it. But his
responsibilities will not end there. He must be ready to serve his clients

140

in many other ways. He must show them that if insurance is worth
getting, it is worth keeping; that the premature surrender of any policy
means sacrifice; that as a man's responsibilities and resources increase,
he will as a rule need additional protection.

He must be constantly prepared to warn his clients against the injury
which results from mortgaging life insurance policies; for the man who
gets a loan on his policy from an insurance company is really borrowing
the money from his wife and children.

He must do his full share in educating the public. He must, for
example, teach them that if insurance companies are taxed, the taxes are
necessarily paid in the end by the policyholders themselves.

He must be quick-witted. He must learn to distinguish between genuine
arguments and mere excuses. Most people hesitate to pay out good
money for advantages which are not expected to materialize until some
uncertain period in the future. Hence many reasons are given for not
insuring, or for postponing action, which are simply for the purpose of
defeating the salesman's arguments. An experienced salesman quickly
recognizes the character of such objections, and either ignores them or
brushes them aside, with the result that when his customer finds that
they have failed to serve his purpose, he also will abandon them. After
that he will be more likely to recognize the wisdom of the agent 's argu-
ments.

Finally, the insurance salesman can never hope to excite
enthusiasm in others unless he is enthusiastic himself, or to
inspire confidence in a company in which he lacks confidence
himself, or even with which he is out of sympathy. If, on
the other hand, he believes with all his heart and soul in the
institution of life insurance, in the stability of his own com-
pany, and in the efficiency of its management, he will have
only himself to blame if he does not succeed.

A policy of life insurance is the
cheapest and safest mode of
making provision for one's
family.

Benjamin Franklin.

141

Sixty years ago the man who insured for the
benefit of his family was looked upon by the
average citizen as a kind of cross between a
well-meaning crank and a blasphemous dare-
devil who presumed to cast dice on the in-
scrutable decrees of Providence.

Thirty years ago the average insurance
man was regarded by his neighbor as a
nimble-tongued schemer who gained an easy
living at the expense of other people's cre-
dulity.

Today, the man who isn't insured some-
where, somehow, for the benefit of some-
body, is likely to be a bad risk of some
kind — either physically, mentally, or mor-
ally.

Insurance is as much a part of modern life
as the telephone or the street railway, and we
have fully awakened to the fact that the
insurance man to be a success must be not
only clever, quick witted, energetic and world-
ly wise, but must be a man of reputation and
probity, and must live up to that reputation—
or get out of the insurance business.

The Los Angeles Express.

142

APPENDIX

1. The Natural Premium. . . §304.

2. The Single Premium. . . . §305.

3. The Level Premium §306.

4. Annuity Charges §308.

143

IMPORTANT NOTES.

1. In actualpracticemostpoliciesareissuedtocontinue
during the lifetime of the Insured. But if such a policy
should be used in the following explanations each compu-
tation would cover many pages of figures. Consequently
a policy extending over a period of only five years has
been selected. Thus, as the principle is the same, we
gain the advantage of a short and simple explanation
instead of a long and complicated one.

2. It must be borne constantly in mind that the pure
premium is lower than the premium actually charged.
The premium which the policyholder must pay — the gross
premium — is the pure premium plus a "loading" for ex-
penses and contingencies.

3. In these explanations no attempt is made to de-
scribe the manner in which actuaries compute premiums.
They have a great variety of mathematical short cuts
and tables which enable them to do work of this kind
with ease and dispatch. The aim here is simply to show
(a) that correct charges can be determined, and (b) that
these charges are not the result of guess work but rest on
a strictly scientific basis.

4. The premium rates quoted throughout this book
are believed to be the highest in general use by any of
the "regular" companies. Some companies charge a
little less than others, but the variations are slight. It
must be remembered that the pure premium is necessarily
the same in every case where the same table of mortality,
and the same interest rate, are employed. Such dif-
ferences as exist in such a case will be in the gross pre-
mium, and will be due to differences in the "loading".
Other things being equal, the smaller the loading the
lower the gross premium, and vice versa.

144

THE NATURAL PREMIUM

304. How to determine the natural premium

In §13 we discovered how to find from the Mortality Table
the proper "natural" premium, before taking interest and
expense into account.

Let us now seek to determine the pure natural premium;
namely, the same rate after making an allowance for interest
(still disregarding expense.)

• In computing premium rates it is assumed that all premiums will
be paid annually in advance, but that the death claims falling due during
each year will not be payable until the end of the year. (See § 18.)
Gonsequently, it is assumed that all the money disbursed to meet policy
claims will have earned interest for a period which can in no instance
be less than one year.

When premiums are paid on the natural basis interest
does not cut much of a figure, because, as each premium
pays for the insurance for one year only, the interest
deducted from each item must be for one year only.

PURE RATE.

It was shown in §13 that the natural rate for $1000 of in-
surance, at age 50, for one year, as derived from the Mortality
Table, is $13.78. To obtain the pure rate we must (as stated
above) make an allowance for interest. This is done in the
case under consideration, by discounting* $13.78 at 3%, for
one year.

When this has been done we find that the pure premium is
$13.38.

The Natural Rates for all five years beginning at age 50,
are shown in the following table:

*The manner in which sums of money are discounted is shown on page 149.

145

ANNUAL RATES FOR $1000 OF INSURANCE
FOR A TERM OF FIVE YEARS.

Based on the American Experience Table of Mortality and 3% Interest.

Age

Rates on the Natural
basis, derived from the
Mortality Table.

Same rates discounted
at 3%, thus obtaining
the Pure Natural Premium

50
51
52
53
54

$13.78
14.54
15.39
16.33

17.40

$13.38
14.12
14.94
15.85
16.89

GROSS RATE.

By adding to the pure premium a "loading" for expenses and
contingencies, the gross rate is obtained — the rate which the
company actually charges. At age 50, for example, the pure
premium is $13.38, while the gross premium would be $21.67.

As the natural rate of charging is seldom employed, we
shall not consider the gross rate further at present. That
part of the subject will be dealt with when we take up the
computation of the level rate.

THE SINGLE PREMIUM
305. How to determine the Single Premium

Having discovered the correct pure natural premiums,
at age 50 for $1000 of insurance for five years, the next problem
will be to determine what pure single premium will be equiva-
lent to these natural premiums. This is not determined by
averaging the natural premiums, but in another way.

The problem is to discover what a group of 69,804 persons,
at age 50, must pay in advance in order that a sufficient fund
shall be immediately established from which to pay all the

146

$1,000 death claims that will fall due during the following'
five years. A part of the Mortality Table is inserted here
for ready reference.

SECTION OF MORTALITY TABLE

Number surviving

Deaths

Age

at each age

each year

69,804

962

68,842

1,001

67,841

1,044

66,797

1,091

65,706

1,143

This table shows that during the first year 962 will die. Consequently,
the death claims for that year will aggregate $962,000. But as the
premium must be paid in advance, and as it is always assumed that the
death claims will not be due until the end of the year, the amount needed
to pay the death claims of the first year will not be $962,000, but that
sum discounted at 3% for one year; namely, $933,981.

The computation for the whole period is shown in the
table on the following page:

As a young man when I was first
looking forward to the obligations of
manhood and the duties of father-
hood, I realized that there was only
one way in which a poor man without
capital could protect his family from
the vicissitudes of fortune and make
proper security against the day that
must come to us all, and that was
through life insurance.

Charles E. Hughes.

147

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148

EXPLANATION OF THE FOREGOING TABLE.

The death claims for the first year amount to $962,000.
But as they are not due until the end of the year, the premium
which must be paid at the beginning of the year will be a
smaller sum; namely, a sum which, increased by 3%, will
amount to exactly $962,000. What that sum is we discover
by discounting $962,000 at 3% for one year. This is done by
dividing $962,000 by 1.03, which gives us the sum desired,
namely $933,981. ($962,000 - 1.03= $933,981.)

The correctness of this is obvious. $933,981 invested
for one year at 3% would yield $28,019 of interest. And
$933,981 + $28,019 = $962.000.

The death claims payable at the end of the second year
amount to $1,001,000, and this item must be discounted in
the same way. But as these claims will not fall due until
two years after the premium has been paid the item must be
divided twice by 1.03. ($1,001,000 + (1.03)2 = $943,539.)

The next item must be divided three times by 1.03, and so
on.

When the five items thus discounted are added together, we
have the aggregate premium to be paid in advance by the
whole group, namely, $4,788,229; that being the sum which,
increased by the addition of 3%, will pay all the death claims,
amounting to $5,241,000, as they fall due.

As the aggregate Single Premium is $4,788,229., the share
which each member of this group of 69,804 persons must pay
will be $68.60; for $4,788,229 -=- 69,804 = $68.60.

The Pure Single Premium for $1,000 of insurance, beginning
at age 50, and extending over a term of five years, is, therefore,
$68.60.*

*This is the rate to the nearest cent. The exact rate is a trifle less. The
item carried to four decimal points is $68.5953+.

149

That this is the correct premium the following computa-
tion proves.

DEMONSTRATION

Showing the correctness of the Single Premium.

Each of 69,804 persons pays $68.60. 69,804 x $68.60 = $4,788,554.40
Add one year's interest. .03% X $4,788,554.40 = 143,656.63

Total 4,932,211.03

Deduct 962 losses of $1,000 each. 962 X $1,000 = 962,000.00

Balance end of first year 3,970,211 . 03

Add one year's interest. .03% X $3,970,211.03 = 119,106.33

Total 4,089,317.36

Deduct 1,001 losses of $1,000 each. 1,001 X $1,000 = 1,001,000.00

Balance end of second year 3,088,317 .36
Add one year's interest. .03% X $3,088,317.36 = 92,649.52

Total 3,180,966.88

Deduct 1,044 losses of $1,000 each. 1,044 X $1,000 = 1,044,000.00

Balance end of third year 2,136,966 .88

Add one year's interest. .03% X $2,136,966.88 = 64,109.01

Total 2,201,075.89

Deduct 1,091 losses of $1,000 each. 1,091 X $1,000 = 1,091,000.00

Balance end of fourth year 1,110,075.89

Add one year's interest. .03% X $1,110,075.89 = 33,302.28

Total 1,143,378.17

Deduct 1,143 losses of $1,000 each. 1,143 X $1,000 = 1,143,000.00

Balance end of fifth year 378 . 17*

*At first blush it may seem that some error has been made in this
computation; for the last deduction ought to exhaust the fund — there
should be nothing left — there should be no balance of $378.17, or any
other sum. But this apparent error is simply due to the fact that to
avoid a long and cumbersome calculation a premium of $68.60 has been
employed, whereas the exact rate is nearly half acentless ($68.5953+). If
the exact rate should be employed, this balance of $378. 17 would disappear .

> fe

150

GROSS SINGLE PREMIUM

As we have seen the pure Single Premium for $1000 of in-
surance at age 50 for a term of 5 years, is $68.60. The cor-
responding gross rate is $86.09.

The following are examples of gross premiums on a "life"
policy — a policy not limited to a term of 5 years but running
during the lifetime of the Insured and maturing at his death:

CONDENSED TABLE

GROSS SINGLE PREMIUMS
For $1000 of Insurance for Life.

Age

21
25
30
40
50
60
65

Premium

$394.08
418.23
452.96
540.12
653.81
787.55
856.46

SEE NOTE 4, PAGE 144.

THE LEVEL PREMIUM
306. How to determine the correct Level Premium.

The level rate must be the equivalent of the natural rate,
and of the single premium. And the easiest way to discover
it is to find the equivalent of the single premium rather than
to find the equivalent of the natural premiums.

Our problem, then will be to find out what level annual
premiums, for $1000 of insurance, paid during a period of
five years, beginning at age 50, will be the exact equivalent
of one premium paid in advance. Before trying to solve this
problem some technical phrases must be denned.

151

DEFINITIONS.

1. The single premium is the "present value" of the
annual premiums. Consequently, if we know what the
annual premiums are and can find their "present value"
(i.e. find what sum paid in advance will be equivalent to
these annual premiums) we shall have the single premium.

2. Conversely, if we know the amount of the single
premium, and regard it as the ' consideration for" (i.e.
the purchase price of) a five-year Annuity-Due * and then
find the series of annuity payments (annuities) which that
sum will produce, we shall also know the correct annual
rate; for the "annuities" produced by the single premium
are the annual premiums.

HOW TO FIND WHAT ANNUAL PREMIUMS WILL BE EQUIVALENT
TO A SINGLE ADVANCE PAYMENT.

The easiest way to solve the problem before us will be to
begin by adopting a convenient unit of measure. To this
end, let us assume that the members of our group (which
starts with 69,804 persons) agree to pay into a common fund
annual premiums of $1 each, at the beginning of each year
during a period of five years.

The amount thus paid in for the first year will of course, be equal to
the number of persons composing our group, namely, $69,804.

The amount for the second year will necessarily be less, because 962
of these people will have died, and there will be only 68,842 contributors.
Hence the aggregate paid in $1 premiums for the second year will be
only $68,842. Here is the entire computation in tabular form:
Age Survivors $1 Premiums

50 69,804 $69,804

51 68,842 68,842

52 67,841 67,841

53 66,797 66,797

54 65,706 65,706

Total Annual Premiums of $1 each $338,990

From the above it will be seen that the total amount paid in $1 pre-
miums during this period of five years aggregates $338,990.

*This kind of Annuity is explained in §84.

152

Now, without trying as yet to find out how much insurance these $1
premiums will buy, let us see if we can determine what single premium
will be equivalent to this aggregate Oi" level premiums. This will be
determined by finding the "present value" of these annual premiums.

The "present value" of the first item is that item itself, namely,
$69,804; for as this sum must be paid at once, no time will be given for
it to earn any interest.

But the second item is not payable for a year. Hence we discount
it for one year (as explained on page 149) thus reducing it from $68,842
to $66,836.89.

In the same way we discount the third item for two years, the fourth
for three years, and the fifth for four years.

Here is the computation in tabular form:

Age

$1 Premiums

Discounted at 3%

50
51
52
53
54

Annual Premii

$69,804
68,842
67,841
66,797
65,706

$T69,804.00
66,836.89
63,946.65
61,128.72
58,378.93

ims $338,990.

"Present Value" of \ $320(095.19
Annual Premiums J

By adding the "present value" of all five items together, we get the
"present value" of the whole, namely, $320,095.19. And this is the
single premium.

The single premium for each member of the group will be the single
premium for the whole group ($320,035.19) divided by the number of
persons (69,804). This is, to the nearest cent, $4.59, or more exactly

$4.5856+.

($320,095.19 -r- 69,804 =$4.5856+)

We now know that at age 50 a single premium of $4.5856 + is equivalent
to an annual premium of $1 . That is to say, a single payment in advance
of $4.5856 + will buy the same amount of insurance for five years as a
premium of $1 payable annually for five years.

153

v What amount of insurance will that be? This is precisely what we are
trying to find out; and as we do not know we turn to the single pre-
mium of $4.5856+ and ask what amount of insurance that premium
will buy. But we shall get no immediate answer, for we do not know
the amount of insurance which a single premium of $4.5856+ will buy;
but we do know that at age 50 a single premium of $68.60 will buy $1000
of insurance. (See §305.) In addition to this, we know that $68.60 is the
"present value" of the ANNUAL premiums (annuities) that will buy
$1000 of insurance. Conversely, we know that if we take a five year
Annuity-Due of $68.60, and find out what annuity payments it will
produce, we shall have the correct ANNUAL premiums.

The correct annuity payments can be determined very easily, as
follows:

We already know that $4.5856+ produces annuity payments of
$1. (i.e. that a single premium of $4.5856+, and five annual premiums
of $1 each, are exact equivalents.)

Now, if the annual premiums corresponding with a single premium
of $4.5856+ are five premiums of $1 each, and if the annual premiums
corresponding with a single premium of $68.60 are in the same proportion
(which they must necessarily be) all we have to do in order to determine
the annual rate for $1,000 will be to find out how many times $4.5856+ is
contained in $68.60. This is $14.96. ($68.60 -5- $4.5856+ == $14.96)

Thus our problem is solved. We now know that $68.60 is the pure
single premium at age 50 for $1,000 of insurance for five years, and that
the equivalent Pure Level Annual Premium is $14.96. This is proved
by the demonstration on the following page.

Having found the premium for $1,000 of insurance, we can find it for
any other amount; for the rate is always the same whether the policy
is for a large or for a fimall amount. We can also find the rate for a dif-
ferent period of years, or for life, either at age 50, or at any other age.

SEE IMPORTANT NOTES ON PAGE 144

A man in office without means
must abandon the hope of making the
future of his family luxuriously com-
fortable. All a man can do under
existing circumstances to safeguard
his family is to get his life insured.
William H. Taft.

154

DEMONSTRATION

Each of 69,804 persons pays $14.96. 69,804 X$14.96 = $1,044,267.84
Add one year's interest. .03 X $1,044,267.84 = 31,328.04

Total 1,075,595.88

Deduct 962 losses of $1000 each. 962 X $1000 = 962,000.00

Balance end of first year 1 13,595 . 88

Each of 68,842 survivors pays $14.96. 68,842 X $14.96 = 1,029,876.32

Total 1,143,472.20

Add one year's interest. .03 X $1,143,472. 20 = 34,304. 17

Total 1.177.776.37

Deduct 1,001 losses of $1000 each. 1,001 X $1000 = 1,001,000.00

Balance end of second year 176,776.37

Each of 67,841 survivors pays $14.96. 67,841 X $14.96 = 1,014,901.36

Total 1,191,677.73

Add one year's interest. .03X1,191,677.73= -35,750.33

Total 1,227,428.06

Deduct 1,044 losses of $1000 each. 1,044 X $1000 = 1,044,000.00

Balance end of third year 183,428 . 06

Each of 66,797 survivors pays $14.96. 66,797 X $14.96 = 999,283 . 12

Total 1,182,711.18

Add one year's interest. .03 X $1,182,711 . 18 = 35.481 .34

Total 1.218,192.52

Deduct 1,091 losses of $1000 each. 1,091 X $1000 = 1,091,000.00

Balance end of fourth year 127,192. 52

Each of 65,706 survivors pays $14.96. 65,706 X $14.96 = 982,961 . 76

Total 1,110,154.28

Add one year's interest. .03 X 1,110,154 .28 = 33,304.63

Total 1,143,458.91

Deduct 1,143 losses of $1000 each. 1,143 X $1000 = 1,143,000.00

Balance end of fifth year 458.91*

*This small balance of $458.91 does not indicate an error in this com-
putation. The note on page 150explains the cause of such discrepancies.
The premium here employed ($14.96) is correct to the nearest cent,
but the exact premium is a trifle less ($14.9588+). If the exact rate
should be employed this balance would vanish.

155

307. Tables of Gross Premiums

The pure level premium for $1,000 of insurance at age 50,
for a term of 5 years, is $14.96. The corresponding gross
premium, the rate after adding the "loading" for expenses
and contingencies, is $23.51.

The rate for a term of 5 years is low. The rate at age 50 for an "Or-
dinary Life Policy, " running during the lifetime of the Insured and ma-
turing at his death, is of course much higher. The Pure Level Pre-
mium for such a policy is $36.36, and the Gross Rate is $48.48.

The gross rate is obtained by adding 33 H% to itself

Pure Premium ......... $36.36

of Pure Premium 12.12

Gross Premium 48.48

The following tables give examples of gross premiums for
different kinds of policies. In considering these rates note
carefully that they are on the participating (mutual) basis,
and that consequently they do not represent the ultimate
cost to the Insured. The ultimate cost will depend on the
amount of REFUNDS (dividends.)

American life insurance will
live to bless our people as long
as American civilization lasts,
and will endure and grow as
long as civilized men, while liv-
ing, take forethought of the
event of death.

Grover Cleveland.

156

CONDENSED TABLE OF GROSS LEVEL PREMIUM RATES

For $1000 of Participating (Mutual) Insurance

LIFE FORMS

Kind of Policy.

Ordinary

Age

Life

10-A.P.

15-A.P.

20-A.P.

25-A.P.

30-A.P.

$19.62

$48.56

$36.00

$29.84

$26.26

$23.95

21.49

51.67

38.35

31.83

28.05

25.64

24.38

56.18

41.78

34.76

30.72

28.19

33.01

67.90

50.92

42.79

38.28

48.48

84.99

65.16

56.17

77.69

111.47

89.94

101.48

131.13

CONDENSED TABLE OF GROSS LEVEL PREMIUM RATES

For $1000 of Participating (Mutual) Insurance

ENDOWMENT FORMS

Kind of Policy.

Age

10- Year

15- Year

20-Year

25-Year

30-Year

$105.84

$68.40

$50.07

$39.38

$32.54

106.22

68.82

50.53 39.90

33.15

106.84

69.51

51 31

40.82

34.25

108.96

72.00

54.31

44.49

38.77

114.24

78.53

62.34

54.29

128.35

96.07

142.47

ANNUITY CHARGES

308. How to determine Annuity Rates.

A "life" annuity is the converse of a "life" policy. Similarly,
a five-year Annuity- Due is the converse of a policy granting
insurance for a period of five years. This being so, if we
reverse the calculation made in §306, we shall be able to
determine the correct charge to make for such an Annuity.

Just here two important points must be kept in mind:
(1) We are dealing with the pure rate, and not the rate
actually charged, which consists of the pure rate plus a
loading for expenses and contingencies. (2) The companies
do not, as a rule, use the same mortality table in computing
their annuity charges as they use in calculating premiums,
nor do they always use the same interest rate. Here (simply
for purposes of illustration) we shall use the same mortality
table and the same interest rate already employed in com-
puting premiums (the American Experience Table and
3% interest) in order that the policy and the annuity shall
be on precisely the same basis. (See Notes, page 144.)

It was shown in §306 that at age 50 in the case of a policy
extending over a period of five years, on which the single
premium is $4.5856+, the corresponding level annual pre-
mium is $1. In other words, a single premium of $4.5856+
would have the same purchasing power as an annual pre-
mium of $1. It was also shown that $4.5856+ is the "present
value" of a five-year Annuity- Due, producing income pay-
ments of $1. That this is correct the computation on the
following page indicates.

The foregoing example is given simply by way of illus-
tration. Knowing the "present value" of a five year Annuity-
Due yielding an income of $1 for five years, we can readily
determine the "present value" of an Annuity of the same
kind producing a larger income for five years, or for any
other stipulated period, or for life.

158

In the same way the proper rates to charge for
other kinds of Annuities can be determined also.

DEMONSTRATION

Each of 69,804 persons pays $4.59. 69,804 X $4.59 =$320,400.36
Deduct 69,804 payments of $1 each 69,804 . 00

Balance 250,596.36

Add one year's interest. .03 X $250,596.36 = 7,517.89

Balance end of first year 258,114 . 25

Deduct 68,842 payments of $1 each 68,842.00

Balance 189,272.25

Add one year's interest. .03 X $189,272.25 = 5,678.17

Balance end of second year 194,950.42
Deduct 67,841 payments of $1 each 67,841 . 00

Balance 127,109.42

Add one year's interest .03 X $127,109.42 = 3,813.28

Balance end of third year 130,922.70
Deduct 66,797 payments of $1 each 66,797 . 00

Balance 64,125.70

Add one year's interest. .03 X $64,125.70 = 1,923.77

Balance end of fourth year 66,049.47

Deduct 65,706 payments of $1 each 65,706 . 00

Balance 343.47*

*For the reason given in the note on page 150 this balance does not
indicate an error in the computation. The item $4.59, employed above,
is correct to the nearest cent. The exact amount is $4.5856+. The
overcharge of a fraction of a cent, increased by interest, in the case of
69,804 single premiums, produces this balance of $343.47.

159

EXTRACT FROM A YALE LECTURE

By
JOHN M. HOLCOMBE.

Life insurance promotes a sense of respon-
sibility, strengthens family ties, and thus
elevates the general character of the nation.
It lessens those family discords which end in
divorce. It checks intemperance, and often
by its requirements brings a realization of the
benefits of right living. ....
There can be no doubt furthermore that life
insurance curtails the expense to the public
treasury, of almshouses and police, of criminal
courts and prisons, and of the various other
necessary branches of the public service which
have to do with the prevention and punish-
ment of crime, the relief of the suffering and
unfortunate. . . . It is certain that in
many cases the proceeds of a life insurance
policy are practically all that remain at the
death of the one responsible for the support
of helpless dependents, and in a vast number
of these cases, were it not for this aid, many
persons would be forced to accept public
cnarity.

160

WILLIAM ALEXANDER'S

Educational Series on

LIFE INSURANCE

1. What Life Insurance Is and What It Does

A preliminary text-book, or primer, dealing with the fun-
mental principles on which all round life insurance rests.

Price $1.50

2. How to Sell Insurance

The chief aim of this book, as the title indicates, is to
teach the inexperienced agent how to do his work, and
build up a remunerative business. While it is intended
primarily for the new agent, it embodies a great deal of
instruction that ought to be of value to the agent of ex-
perience. It will also be useful to those who are engaged
in the work of training inexperienced agents. Price $2.00

3. The Prosperous Agent

This little book is for the guidance of experienced and
inexperienced agents alike. It gives a catalogue of the
characteristics — the mental equipment — of the successful
business man, and tells how these qualifications can be
utilized to the greatest advantage by the insurance sales-
man. The instrument with which the agent does his work
is his own mind. The material on which he uses this_ deli-
cate instrument is the mind of another person. It is all
important, therefore, that he should know exactly how to
utilize his mental equipment. Price, paper cover, $1.00
Bed cloth $1.50

4. The Art of Insurance Salesmanship

This volume takes up the instruction of the agent where
the second volume of this series stops. It contains more
advanced instruction, and one of its aims is to stimulate
the thought, fire the imagination, broaden the vision, and
thus increase the efficiency of experienced agents.

Price $2.00

5. 100 Ways of Canvassing for Life Insurance

This concluding volume describes many ways of _ soliciting
life insurance and includes numerous canvassing plans
contributed by experienced field men, with the author's
comments on these plans. Price $3.50

THE NATIONAL ASSOCIATION OF
LIFE UNDERWRITERS

11 West 42nd Street .-. .-. New York City

161

INDEX

The following figures indi-
cate paragraphs, not pages.

Accident benefit § 91

Actuary 28,98

Addition, Dividend 99

Additional policy 100

Admission of age 101

Admitted assets 102

Admitted surplus 103

Advantages of life insurance. 90

Adverse selection 37, 104

Age 48,105

Age determines premium ... 23

Age limit 106

Age, Proof of 101

Agency manager 107

Agent 44,46,47,108

Agent, Province of 253

Agent 's characteristics 303

Agent 's contract 109

Agent 's development 303

Agent 's duties 51

Agent's education 303

Agent 's responsibilities 108

Alternate policy Ill

American experience mortality

table 12,112

Amount of gross premium

unimportant 22

Amount of insurance a man

should carry 94

Annual premium 306

Annual statement 113

Annuitant 114

Annuitants live long 81

Annuities 78

Annuity-certain 86

Annuity charges 308

Annuity contract. § 117

Annuity converse cf insurance 78

Annuity-due 84

Appendix 304, 308

Applicant 44,119

Application 48, 12C

Apportioning surplus 121

Assessment insurance 77

Assets 123

Assets, Admitted 102

Assurance, Life 124

Average, Law of 10

Balance sheet § 25

Basic principles 8

Bed-rock foundations 2

Beneficiary 60, 62, 125

Beneficiary, Change of 133

Benefits 61

Binding receipt 126

Birthday 48

Bonus 127

Brokerage contract 128

Business, How conducted .... 47

Business insurance 70

Capital §40, 123

Capital stock 40

Careful selection means profit 38

Cash dividend 131

Cash value. 57

Change of beneficiary 133

Characteristics of good agent . 303

Charges for annuities 80

Charges, Premium 134

Child 's endowment 71

Claim.. . 137

162

Claim, Contested § 143

Classes 273

Collateral advantages 61, 91

Commission contract 138

Commissioner of insurance . . 139

Commissions, Renewal 263

Company departments 46

Company, Government of . . . 182

Company, Mixed 41

Company, Mutual 39

Company, Non-participating.. 40

Company, Proprietary 251

Company, Regular 205

Company, Stock 40

Computation of premiums . . 304

Conditional receipt 126

Consideration for annuity ... 142

Contested claim 143

Continuous instalment policy 144

Contract, Agent's 109

Contract, Brokerage 128

Contract, Commission 138

Contract, Insurance 146

Contract of insurance 44

Contract, Supplementary 284

Conversion privilege 147

Cooperative insurance 77

Corporate policy 149

Cost of insurance 8, 9

Creditor's policy 150

Date of birth § 48

Death claim 151

Death claim, Contested 143

Death rate 11, 35, 152

Declaring dividend 153

Deferred annuity 88

Deferred dividend 155

Deferred dividend policy 156

Deferred premium 157

Delivery of policy 158

Department valuation 159

Departments of company .... 46

Departments of insurance .... § 34

Deposit 160

Development of agent 303

Development of life insurance 89

Different kinds of insurance. 49

Disability 91

Disability privilege 161

Dividend declaration 153

Dividend, Deferred 155

Dividend notice 56, 163

Dividend on paid-up insurance 164

Dividends 31

Double indemnity 91

Duties of agent 51

Education of agent § 303

Endowment insurance, Origin

of 62

Endowment period 166

Endowment policy 66

Equitable of London 7

Evolution of life insurance . . 7

Examinations 48

Expectation of life 169

Expectation table 169

Expense savings 33

Experiment that failed 76

Extended term insurance 171

Extension 55, 172

Extra hazard 173

Extra premium 173, 174

Fallacies about life insurance § 96

Family history 175

Financial condition of com-
pany 43

Fire insurance 2

First year's premium 176

Forfeiture 52,177

•Forms, Policy 178

Foundations 8

163

Fraternal insurance § 77

Fully insured 94

General agents § 46

Government of companies. . . . 182

Grace 54, 183

Gross premium 20

Group insurance 72

How business conducted .... § 47

How refunds used 32

How to determine age 105

How to determine annuity

charges 308

How to determine premium

charges 304, 305, 306

How to discover proper

charges 12

How to select a company ... 97
I

Immediate annuity § 84

Impaired risk 173, 187

Incidental advantages 92

Income from annuities 79

Income insurance 67

Incontestability 190

Industrial insurance 69

Inspection 191

Instalment policy 73

Insurable interest 193

Insurance commissioner 139

Insurance company a cor-
poration 45

Insurance contract 44

Insurance denned 2

Insurance departments 34

Insurance in force 196

Insurance, Life income plan 67

Insurance, Permanent 239

Insurance, Preliminary term. . 244

Insurance reserve 24

Insurance salesman 44, 303

Insurance, Sub-standard . . .173

Insurance superintendent § 139

Insured 48, 197

Insuring lives, Cost of 9

Interest 18

Interest savings 33

Interest standard 199, 280

Irregular premium 200

Joint life policy § 74

Kinds of insurance § 49

Law of average § 10

Law of mortality 11

Legal reserve company 205

Level gross premium 306

Level gross premium rates. . . . 307

Level premium 16, 306

Level pure premium 306

Liabilities 25

Liberal provisions 61

Life annuity 78

Life annuity rates 80

Life company, What it is. ... 44

Life, Expectation of 169

Life income policy 67

Life insurance agent 44

Life insurance company 6, 46

Life insurance company des-
cribed 46

Life insurance denned 3

Life insurance, Evolution of. 7
Life insurance, Its object .... 4

Life insurance, Need for 5

Life policy 211

Life policy, Limited payment

form 62

Limited payment policy . . .62, 212
Loading, How determined. ... 21

Loans on policies 58, 59, 243

Loan value. . . 214

164

Making a valuation § 28

Managers 46

Maturity of policies 60, 215

Maximum of permanent pro-
tection 49

Medical examinations 35

Medical examiner's fee 216

Medical examiner's report. 48, 217
Methods of conducting busi-
ness 39, 40, 41

Methods of conducting busi-
ness compared 42

Mixed plan 41

Mortality, Law of 11

Mortality savings 33

Mortality table 12

Mutual plan 39

Mutual, Purely 182

Natural gross premium § 304

Natural plan undesirable 76

Natural premium 13, 304

Natural pure premium 304

Necessity for reserves 77

Necessity of insurance 5

Need of surplus 30

Net premium 19

Non-forfeiture 177, 225

Non-participating plan 40

N. T. O. policy 228

Object of life insurance § 4

Office premium 229

Old Equitable 7

One year term policy 231

Options 232

Ordinary life policy 49

Outstanding Insurance 196

Paid-up policy § 234

Paid-up value 57, 235

Participating plan 39

Period, Endowment § 166

Permanent insurance 239

Permit 240

Perpetual annuity 87

Policies, Valuation of 28

Policy contract 44

Policy, Corporate 149

Policy, Creditor 's 150

Policy, Deferred dividend .... 156

Policy, Delivery of 158

Policy, Life 211

Policy, Limited payment 212

Policy loan 58, 243

Policy loans injurious 59

Policy maturities 60

Policy, Non-participating 227

Policy, One year term 231

Policy, Paid-up 234

Policy, Rated-up 173, 257

Policy reserve 24

Policy, Whole life 302

Policyholder 48, 197

Policyholder 's right point of

Popular fallacies 96

Popularity of level premiums. 17
Preliminary term insurance . . 244

Premium, Annual 306

Premium, Semi-annual 245

Premium, Quarterly 245

Premium charges 8, 23

Premium, Deferred 157

Premium, Extra 173, 174

Premium, First year's 176

Premium, Gross 20

Premium, How computed. . . 304

Premium, Irregular 200

Premium, Level 16, 306

Premium, Natural 13, 14, 304

Premium, Net 19

Premium notice 53, 246

Premium, Office 229

Premium, Pure 19

165

Premium, Renewal § 264

Premium, Semi-tropical 173

Premium, Single 15, 305

Premium term 247

Premium, Tropical 173

Premium, Waiver of 91, 301

Premiums of different com-
panies vary 135

Present worth 248

Privilege, Disability 161

Privilege of conversion 147

Privileges 249

Profit, Sources of 33

Profits 33

Proof of age 101

Proofs of death 60

Proper charges 9

Proprietary company 251

Prospect 252

Province of agent 253

Public service 93

Pure endowment 64

Pure premium 19

Purely mutual 182

Rated-up policy § 173, 257

Rates for life annuities 80

Re-capitulation 43

Reduction, Dividend 258

Refund 22, 30

Refund annuity 82

Refunds, how used 32

Refunds, their composition . . 33

Regular company 205

Reinstatement 261

Re-insurance fund 28

Renewal commissions 263

Renewal premium 52, 264

Report of medical examiner . . 48

Reserve 24, 25, 26, 27, 28

Reserve a present liability .... 26

Reserve standard 280

Reserves on individual policies 27

Responsibilities of agent ... § 108

Restoration 52, 261

Restrictions 267

Return premium 31

Return premium policy 75

Right point of view 95

Risk 269

Risks, Extra hazardous 173

Safety of life insurance § 59

Salesman, Insurance 108, 303

Savings 33

Scientific foundations 8

Scope of life insurance 90

Selection, Adverse 104

Semi-tropical rates 173

Separate classes 273

Settlement 274

Simple endowment 64

Single premium 15, 305

Single gross premium 305

Single pure premium 305

Soliciting agent 46, 277

Sources of profit 33

Sources of savings 33

Sources of surplus 29, 33

Standard 280

Standard, Interest 199

State supervision 34

Stock, Capital 40

Stock plan 40

Sub-standard insurance 173

Summary 11

Superintendent of insurance . . 139

Supplementary chapter 303

Supplementary contract 284

Surplus 25

Surplus, Admitted 103

Surplus, Sources of 29, 33

Surrender value 57, 287

Surrender value in extended

insurance 57

Surrender should be avoided. 59

266

Survivorship annuity § 68

Survivorship annuity rates . . 68

Table of gross level premiums § 307

Table of mortality 12

Table of rates 289

Table of surrender values 57

Taxation 34

Technical knowledge essential. 8

Temporary annuity 85

Term policy 63

Three methods compared 42

Three methods of conducting

business 39, 40; 41

Three per cent reserve 280

Three ways of charging . 14, 15, 16
Total and permanent disa-
bility 91

Tropical rates 173

Twenty-payment life policy . . 62

Twisting 297

Two life annuity 83

Two life policy 74

Typical company 25

Use of mortality table § 12

Valuation § 28

Valuation by insurance de-
partment 159

Value, Loan • 214

Value, Paid-up 235

Valuing policies 28

Various uses of life insurance 90

Waiver of premium § 91, 301

Weakness of assessment in-
surance 77

What a life company is 44

What a life company is not. 44

What insurance is 2

What refunds consist of 33

What to charge 12

Whole life policy 302

Why a corporation 45

Why insurance on natural plan

fails 76

Why people insure 1

SEE TABLE OF CONTENTS
FOR SECTION HEADINGS

167

If a man does not provide
for his children; if he does
not provide for all who are
dependent upon him, and if
he has not that vision of
conditions to come and that
care for the days that have
not yet dawned, which we
sum up in the whole idea
of thrift and saving, then
he has not opened his eyes
to any adequate conception
of human life. We are in
this world to provide not for
ourselves alone, but for
others, and that is the basis
of economy. So that econo-
my and everything which
ministers to economy sup-
plies the foundations of na-
tional life.

Woodrow Wilson.

THE LIBRARY

UNIVERSITY OF CALIFORNIA
LOS ANGERS

A 000 201 469 4

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