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TABLE I

NUMBER OF POLICIES AND AMOUNT OF INSURANCE IN FORCE IN ORDI. NARY AND INDUSTRIAL COMPANIES, 1850 TO 19051

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Fire, Marine, AND CASUALTY INSURANCE, 1890-1905 1

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1890 1892

1893

1894 1895

1896

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583 176,300,042

558 176,364,638 100,919,134 41 14,238,564 4,601,207 97,379,026 47 18,077,146 5,430,607 89,903,460

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541 172,945,625

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530 176,751,124 87,165,252 53
504 178,320,217 97,974,682
484 184,142,217 114,619,372 59
493 198,312,577 116,753,281 62

50 20,154,235 6,494,944 22,859,866 7,113,818 54 23,478,642 7,583,541 27,117,449 8,802,777 32,309,619 10,166,796 39,844,427 12,966,145

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482 216,452,381 | 121,020,924

67

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489 239,468,206 123,332,012
563 261,431,401 125,434,065

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43,980,061 14,952,568

73

49,716,644 16,679,975

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550 281,228,402 165,658,558 82

55,685,447 19,332,539

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See Statistical Abstract of the United States (annual) and The Insurance Year Books published annually by the Spectator Company, New York, N.Y.

prestige on account of the scandalous extravagance and corrup tion revealed by official investigations. The evil practices had to do chiefly with the management of the surplus, which was not under legal control as was the reserve. These terms will be explained presently. It is probable that they will now learn the lesson of economy, just as they have learned from their experience a generation ago the supreme need of being solvent. Insurance has grown until the insurance companies rival the banks in financial importance. The assets of the leading life insurance companies are nearly equal to the capital and deposits of all national banks.

Forms of Insurance Organization. Fire insurance may be written by stock companies, by mutual companies, or by associations of individual insurers, known as underwriters and Lloyds. Mutual companies, again, may be either local county or town mutuals, state or general mutuals, or the manufacturers' mutuals. The local town mutuals have the advantage that they can be conducted with a very low cost of administration, but the business of fire insurance seems best adapted to the stock companies, since it is desirable that the risk of a conflagration should be spread over a very wide territory.

Life companies are also found both in the stock and mutual form. Theoretically the management of the latter is in the hands of the policy holders themselves, but in actual practice they must be managed by a small group of financiers. Attempts have been made by recent legislation in some states to make the management more nearly representative of the interests of the policy holders by providing for election of officers by mail. Life insurance companies are also classified according to the plans of premium payments: (1) "old line" level premium, (2) assessment, (3) stipulated premium, and (4) fraternal orders.

Wherever risk enters in modern life, companies are organized to offer an escape from it through insurance even before enough data have been collected to make possible the accurate prediction of the amount of loss. In addition to life insurance we have indemnity in case of sickness, accident, destruction by fire, wind, hail, explosions of boilers or fly wheels, broken windows,

and loss from burglary or the unfaithfulness of employees. Liability insurance in over a dozen different forms guards against loss from damage suits. It is impossible to take up the problems that are peculiar to each one of these branches, but we note the leading features of the most important branch in life insurance.

LIFE INSURANCE

Life Tables. A life table or mortality table shows how many of a large group of persons of the same age will survive to each higher age. A number of these tables have been calculated, but the one generally used in this country is the American Experience Mortality table, a portion of which is here reproduced:

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With such data and with an assumed rate of interest and expenses, it is possible to say with considerable certainty how much money must be collected from the policy holders in order to pay each one $1000 or other sum at death.

Premium Plans. It would be possible to collect from those surviving at each age enough money to pay for the deaths that

would happen during the ensuing year. This step rate plan would mean in the later years of the table a larger and larger assessment; that is, at the time when the earning power of the insured was declining. It has become customary to arrange the payments on what is known as the level premium plan, the same annual payment being made throughout the life of the policy. This payment may be on the ordinary life plan, that is, the payments continue throughout life; or ten, fifteen, or twenty limited payments may be made, the policy continuing in force for life; or the insurance may be for only a term of years during which the premiums are paid, the insurance ceasing entirely at the end of the term. This is the cheapest kind of insurance, for the insurance company knows that many of the insured will survive beyond the term, and to them no payment need be made, but when the insurance continues for life, the payment becomes a certainty in every case.

The Reserve. If a level premium is charged, the income of the company in the earlier years exceeds its current mortality requirements. The portions of the premium not currently used must be held for the credit of the policy holders until the later years, a certain rate of interest being allowed. This accumulating fund is known as the reserve.

Surplus. If the insured die less rapidly than was assumed by the company in calculating its premiums, more money will be collected than is necessary to meet the obligations of the insurance contracts. This is one source of surplus. Again, the funds held in trust by the company may be invested at a higher rate of interest than was assumed in the calculations, and this is a second source of surplus. A third source of surplus is in keeping expenses below what was assumed in the calculations. (The addition which is made to the net premium to cover expenses is called "loading," and is commonly not far from a third of the net premium.) The amounts paid in by those who lapse or surrender their policies do not all go to the surplus, for it is customary now to allow surrender values and paid-up insurance, but as these values are subject to a surrender charge, there is an addition to the surplus from the surrendered or lapsed policies, although the

companies try to discourage lapsing. Out of this surplus are paid the dividends on the capital stock, if there be any, and the dividends to each policy holder, which in some cases are credited or paid annually to each policy holder, or in other cases not until the expiration of a period of years.

Endowments. What is ordinarily called an endowment policy is a combination of two distinct forms of contract. A simple life insurance contract promises to pay the insured a certain sum in the event of death; a pure endowment contract would pay a certain sum if the holder of the policy survives after a period of years. A twenty-year so-called "endowment" policy combining these two features means that payment would be made at death if that occurred within the twenty years, or at the expiration of twenty years if the policy holder survives.

This form of policy has been declining in popularity because in its ordinary form it is disadvantageous to the policy holder, unless he be so thriftless that he cannot be induced to save in any other way; also, if insurance could not be obtained in any other way, it might be wise to purchase such a policy, but the objects of saving and insuring can be more cheaply accomplished by separating the two features. If, instead of paying $50 for an endowment policy, the holder paid part of this for term insurance and put the remainder in a savings bank at three or four per cent compound interest, there might be more to his credit whether he lived or died. But when the loading is properly arranged, and with an annual distribution of surplus, the endowment policy performs a useful function as an encouragement of thrift. In fact, a very long term endowment maturing at, say, age sixty-five, would best meet the needs of a great many persons.

These points will be made clearer by the following illustration of what becomes of the premium in the case of a ten-year endowment policy at age thirty-five with a premium of $107.70, when it is assumed that the mortality will be in accordance with the American Experience Table, that the company will earn three per cent on its funds, and that the expense charged each year to this policy will be as given in the following table:1

1 Report of the Wisconsin Joint Legislative Investigating Committee, 1906, p. 153.

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