The principal difference, therefore, between the two consists in the method of electing directors. In Mutual Companies these are elected by the policy-holders, and in Proprietary Companies by the shareholders. In the United States the votes are controlled in Mutual Companies by proxies obtained from policyholders, in Proprietary Companies by actual control of the stock. In practice, therefore, there is little difference even on this score, because the management of a Life Assurance company must necessarily be of a permanent character to ensure success. quent change in management generally points to disintegration. Accordingly, whether the directors and executive officers are appointed by shareholders, or by policy-holders, their offices are usually held more or less permanently-in other words, they are to a great extent elected by themselves, and it is best so. The controlling power is there to take action in cases of inefficiency or mismanagement.

QUESTIONS ON CHAPTER I.

Fre

(1) State the general principles underlying the system of life assurance. (2) Compare the advantage of paying premiums for life assurance with paying the same amounts into a savings bank.

(3) What are the elements which have to be taken into account in life assurance calculations?

(4) Assuming that a life assurance company should cease to write new business what steps can be taken for the protection of the policy-holders? (5) Mention some of the principal causes that have brought about the failure of assessment companies.

(6) State the advantages and disadvantages of the fraternal system of life

assurance.

(7) The expenses of industrial insurance companies have been high as compared with ordinary companies. Give reasons.

(8) What necessity is there for the "reserve" held by regular life assurance companies?

(9) What are the principal differences between mutual and proprietary

companies?

(10) How may a proprietary company be converted to one on a mutual basis?

CHAPTER II.

DIFFERENT KINDS OF ASSURANCE, AND HOW TO OBTAIN A POLICY.

Life Policies may generally be classified in the divisions:

A fifth class, Annuities, will also be discussed, as they have a close connection with the subject.

Ordinary
Life.

WHOLE LIFE ASSURANCE.

Whole Life Policies are those wherein the sum as

sured is payable at death and at death only. They are essentially for the benefit of others: in their early years they generally afford protection for a wife or children, while in the case of prolonged life the sum assured is then available for legacies or bequests at a time when the children have attained independent positions for themselves. When premiums are payable throughout the entire lifetime the policy is usually called an "Ordinary Whole Life Assurance," or a "Whole Life Assurance by Continued Payments.'

The following may be taken as a very simple form of such a policy:

In consideration of the application for this assurance, and the payment in advance of an annual premium of $250.00, and the payment of a like amount on the first day of January in each year during the continuance of

this contract, the WORLD LIFE ASSURANCE COMPANY agrees to pay the sum of $10,000 upon receiving satisfactory proofs of the death of John Smith, residing at No. 100 First Street, New York City, to his executors, administrators, or assigns.

IN WITNESS WHEREOF this contract has been signed by the President and Secretary of the WORLD Life AssurANCE COMPANY at New York, this first day of January, 1904.

This specimen contract is reduced to its simplest possible terms. It does not take into consideration Privileges which are granted to the policy-holder; and, in like manner, ignores Conditions which are desirable for the protection of the company; the laws of New York make it necessary to incorporate many of such Privileges and Conditions.

Privileges.

The Privileges generally inserted may be briefly summarized as follows:

I. A month is usually allowed for payment of premiums after the due date, the assurance protection being continued during these "days of grace.

2. On discontinuance of the policy, Surrender Values may be claimed by the policy-holder. A value may generally be taken in cash, or in the form of reduced sum assured on which no further premiums are payable, or by continuing the assurance at the full amount for a temporary period without payment of premiums. In the United States it is usual to include a table of such values in the policy. In Great Britain the same custom is being introduced, although heretofore the practice has been to state only a minimum cash value, such as 33 per cent or 40 per cent of the premiums paid.

3. Provision is made for granting loans to the policyholder within the value of the policy at a moderate rate of interest.

4. Participation in the surplus funds of the company may be granted.

5. Optional modes of Settlement are offered, whereby the sum assured can be taken in instalments over a period of years, or as an annuity for the life of the Beneficiary.

6. The privilege of changing the policy to one of another form is sometimes given, and it is usually stated that the policy shall be "incontestable" either from date of issue or after the lapse of one or two years.

Conditions.

The Conditions which are more or less necessary from the company's standpoint are:

I. That the age of the life assured be correctly stated;

2. That the information submitted with the application for assurance be truthful; and

3. That the life assured have no immediate intention of (a) Committing suicide;

(b) Engaging in a hazardous occupation; or

(c) Proceeding to an unhealthy climate.

The above Privileges and Conditions, except loan and surrender values on the shorter period term assurances, apply to all classes of policies.

Beneficiary Another valuable privilege consists in the right to and nominate a beneficiary to whom the sum assured Insurable shall be payable. In the foregoing specimen Interest. policy the sum assured is payable to "executors, administrators or assigns," but contracts are frequently drawn so as to provide that it shall be payable to wife, or to a child, as beneficiary; and, when this is done, the policy is generally protected against the claims of any creditors of the life assured: the policy constitutes a trust for the purpose for which it was effected.

When the assured pays the premiums, and reserves the right to change the beneficiary at pleasure (a common condition), the claims of creditors would probably prevail over those of a beneficiary during the lifetime of the assured. On the question of relationship, it may be said in general that dependents have the right to effect assurances on the lives of those who support them. Thus a wife may take a policy on the life of her husband, a daughter on her father; but an uncle may not do so on a nephew unless for reasons other than mere relationship. In the case of policies drawn in favor of strangers, no vested interest is acquired unless there is what is known as an "insurable interest." Without such insurable interest the effect of nominating a stranger as beneficiary would be much the same as bequeathing the sum assured by will; the bequest would be revocable by the life assured at any time. If, however, there is a pecuniary interest held by one person in the life of another, the former may effect a policy on the life of the latter to protect himself against loss in event of death. Legal restrictions have very properly been placed upon effecting assurance on the lives of persons in whom there is no direct interest, because such practice, which at one time was not uncommon, constitutes "a pernicious kind of gambling."

Liberal The tendency of recent years has been to obInterpretation. serve much caution as to the character of persons admitted to the benefits of life assurance; and, when once they have been accepted, to interpret the policy contract with the greatest possible liberality. Particular care is observed as to the habits and social surroundings of applicants before the issue of any policy, because it has been found by long experience that those who lead loose, drunken, or immoral lives are inevitably subject to heavy mortality rates.

Limited Payment

To many thoughtful persons the continued payment of premiums in the later years of life is distasteful. They do not know whether their income in old age may be sufficient to continue the annual premiums. The

Policies.