The Insurance of Employees for the Benefit of Their Families

The Insurance of Employees for the Benefit of Their
Families.Thus far attention has been called to the
insurance of officials and valuable employees for the bene-
fit of the business with which they are connected. Numer-
ous policies, however, are issued to-day which have for
their purpose the insurance of the rank and file of the em-
ployees in any given line of business for the benefit of their
families, although the employer pays all or a portion of the
premiums. Although such insurance appears to be primarily
family insurance, it also serves a useful business purpose in
increasing the efficiency of the employer's working force.
Long service on the part of employees is deemed desirable by
employers as one of the best means of keeping up the quality
and keeping down the cost of the product. Frequent change
in the labor force not only necessitates constant instruction,
but, in the long run, spells loss through inefficiency. It is,
therefore, with a view to lengthening the service of its em-
ployees that many corporations and firms have adopted the
profit-sharing plan or are maintaining for their employees,
at considerable expense, comprehensive pension or insurance
plans.

A great variety of methods is used in this respect, but all
have the same general purpose, viz., the elimination of the
loss that is connected with frequent changes in the working
personnel. Sometimes the employer accomplishes this pur-
pose through a plan of self-insurance, while in other in-
stances the insurance protection is obtained from a company.
Sometimes the plan simply provides for the payment to the
deceased employee's family of a stipulated pension or a lump
sum of insurance, while in other instances, and this is com-
ing to be regarded as preferable, the insurance does not ma-
ture as a lump sum payment but the proceeds are paid to the
beneficiary in annual, semi-annual, quarterly or monthly in-
stallments. Again the employer may seek to bind his em-
ployees to himself by rewarding them with an endowment
policy which provides for the payment of a stipulated sum
either in the event of death during a given period like twenty
years, or upon their survival of that period. If the employee
dies during this period and while still in the service of the
employer, the proceeds of the policy pass to the employee's
family either under the lump sum or installment plans of
payment. If, however, the employee remains with the busi-
ness during the entire twenty years the proceeds will at the
end of that period be paid to him directly. Should the em-
ployee cease to remain in the business, the employer usually
has the option of surrendering the policy for its cash value,
or of permitting the employee, if he is willing to refund the
back premiums, to take over and himself carry the policy to
its maturity.

Related posts:
The Use of Partnership Insurance.

The Use of Partnership Insurance.

The Use of Partnership Insurance.To an increasing ex-
tent copartners in any line of business find it advisable to
insure their lives for the benefit of their firm. This may be
done in one of two ways: either each member of the partner-
ship may take out a separate policy on his life and make the
same payable to the firm, or to the surviving member or mem-
bers of the firm ; or the insurance may be taken jointly upon
all or any number of the partners, the contract in this instance
(called a joint-life policy) promising payment to the firm or

and the $4,000,000 carried by his son Rodman Wanamaker; the
$1,000,000 carried by Harry G. Selfridge in establishing his Ameri-
can department store in London; the $500,000 on the late Charles
Netcher, the department store manager of Chicago, who died while
enlarging his store, the prompt payment of which, after but one
premium was paid, largely assisted his wife in continuing the busi-
ness and suggested her carrying $1,200,000 insurance herself."
The numerous benefits derived from partnership insurance
become apparent upon a consideration of the many diffi-
culties that may confront a copartnership upon the death of
one of the members of the firm. In most partnerships the
several partners not only have supplied their respective por-
tions of the necessary capital, but each is a specialist in some
particular department. The death of any member of the firm,
therefore, may involve not only the withdrawal of his share
of the capital by his heirs but the loss of his skill and active
cooperation. If, however, the deceased partner has been in-
sured for the benefit of the firm, the proceeds of the policy
will enable the surviving partners to pay off his interest to his
heirs and carry on the business without delay and embarrass-
ment during the time necessary to find a successor. Fre-
quently the purchase of the deceased partner's interest becomes
highly desirable, especially where the business is a specialized
one, in order to prevent that interest from coming under the
control of persons in the firm who may be entirely ignorant
of the business and possibly hostile to its management.

Related posts:
Life Insurance as a Means of Indemnification Against

Life Insurance as a Means of Indemnification Against

Life Insurance as a Means of Indemnification Against
Loss Through the Death of Officials and Valuable Employ-
ees. Turning now to a discussion of the numerous business
uses to which life insurance lends itself, we find that one
field for its application consists of the numerous businesses
which depend upon, in fact have been built around, some one
man whose capital, energy, technical knowledge, experience,
or power to plan and execute make him a most valuable asset
of the organization and a necessity to its successful operation.
Numerous examples may be pointed to as illustrating the dependence
of successful business upon the personal equation.
Thus a corporation or firm may be vitally interested in one of
its officers whose financial worth as an indorser, or whose
ability as an executive, may be the basis of its bond issues or
bank credit. A manufacturing or mining enterprise may be
dependent upon someone who alone possesses the chemical or
engineering knowledge necessary to the concern. A publish-
ing house may have engaged someone who alone can be the
author of a proposed work and may be obliged to incur con-
siderable outlay before it is written. The sales manager of a
large business establishment' may have made himself indis-
pensable through his ability to organize an efficient body of
salesmen, to employ the most effective methods of selling,
and to develop profitable markets. Again, some officer of the
concern, although not actively engaged in its daily operations,
may prove indispensable because he is its principal owner and
because his experience and business connections make him
its chief adviser.

These are only a few illustrations of the many that might be
given to show the importance of a human life as an asset to the
successful operation of a business. Now why not insure the
business against the loss of that life that asset through
death? Surely, the extinction of such valuable lives will in
many instances prove a more serious loss than that by fire or
any of the other sources of loss in business against which
insurance is invariably procured. The death of the officer
whose indorsement or executive ability is the basis for the
firm's bank and bond credit might result in a refusal on the
part of lenders to renew old and make new loans, thus possibly
jeopardizing the business because of a lack of capital. If
adequately insured, however, for the benefit of the business,
the firm would immediately upon his death receive the face
value of the policy. Not only would the insurance proceeds
help to enable the company to meet any obligations falling
due during the period of adjustment, but the mere knowledge
that the business was the recipient of a large amount of cash
would be a powerful factor in allaying doubt and in restoring
confidence on the part of creditors. Similarly the death of
the person who alone possessed the chemical and engineering
knowledge required by his employer might result in the lower-
ing of the quality or the volume of the output of the com-
modity in question, thus causing much inconvenience and pos-
sible loss of business; while the death of the sales manager
might involve the disintegration of the selling force and the
consequent loss of profitable markets. Furthermore, in niany
instances an untimely death may leave a special piece of work
unfinished and subject the employer to a loss of the advances
made, since no one else can be found to bring the unfinished
project to completion. Here the amount of life-insurance pro-
tection may be made to equal approximately the outlay in-
curred, and if the work is known to require only a few years
for its completion, the term of the policy may be made to
cover only this limited period. Such short-term policies also
often prove desirable for the protection of a business against
the death of its owner or manager during the first five or ten
years required for the business to become firmly established.
All losses of a character like those enumerated may be
guarded against by making the business the beneficiary of a
sufficiently large policy on the lives of the officers or employees
under consideration. 1 In the event of death the business will

2 The following may be mentioned as a few of the notable in-
stances of business insurance which are commonly cited as illus-
trative of the extent to which certain men use life insurance for the
benefit of copartnerships and corporations: George E. Nicholson,
Kansas City, $1,500,000 in favor of four cement companies of which
he is president: H. X. Byllesby, Chicago, $1,250,000 as managing
engineer of electric companies; John H. Jones, Pittsburgh, $1,000,000
in favor of the Pittsburgh-Buffalo Co., of which he is president;
John H. MacMillan, Minneapolis, $500,000 in favor of the Carigal
Elevator Co., of which he is vice-president; F. B. Wells and F. T.
Heffelfinger, Minneapolis, $500,000 each in favor of the F. H. Peavey
Co.; and Arthur S. Ford, $1,000,000 in favor of the Portland Cement
Co., of which he is treasurer.

Related posts:
Business uses of life insurance

Business uses of life insurance

So-called " business " or " commercial " life insurance has
assumed large proportions only within the present decade.
While the primary purpose of life insurance is to protect the
family against the loss of the income-producing capacity of the
breadwinner, it is becoming clear that the business enter-
prises of the country likewise have need of protection against
the loss of the valuable lives that give them vitality and suc-
cess. During the last few years the business world seems to
have discovered this fact, and as a result an enormous amount
of insurance has been written on the lives of business men
who have had in mind chiefly the stabilizing of their business
through the establishment of better credit relations and the
procurement of protection against the loss through death of
those most valuable to its success. So large is the volume
of business insurance becoming, and so rapid is its increase
that there is good reason to believe, as one writer on the sub-
ject recently stated, that " the time is fast coming when the
life-insurance policy will be almost as integral a part of cor-
porate and copartnership structure as are the charter, the
bond, the stock certificate, and the articles of copartner-
ship." * The business uses of life insurance afford a boundless
field for study and thought, because there are few men, indeed,
who do not at some time face a business situation, the solution
of which will be made simpler and less hazardous through the
medium of some kind of life insurance.

Close Relationship Between the Home and Business.
Business life insurance should particularly appeal to a busi
ness man when it is shown that in nearly all instances there is
a very close relationship between his home and the business
in which he is engaged. So close is this relation that a
policy taken for the special conservation of the business may
often prove even more valuable than a policy taken out for
the direct protection of the family. The latter policy can
seldom do more than alleviate in a measure the financial
injury caused by the death of the income-producer, while the
former may be the means of successfully continuing in opera-
tion the business of the deceased. Had not the former policy
been taken out the business might have failed or declined.
The family policy usually assures the continuance of a portion
only of the insured's income during life, while the business
policy, since it conserves the efficiency of the insured's business,
may be instrumental in bringing about the continuation
of a much larger income, viz., the income from a successful
business.

Moreover, the owner of a business, generally speaking, con-
ducts the same primarily with a view to supporting a home,
thus again showing that the welfare of the home and the wel-
fare of the business are so intimately related as, generally
speaking, to be inseparable. On the one hand the advantages
of family insurance as discussed in the preceding chapter,
such as freedom from worry, increase in initiative, etc., will
produce a very wholesome effect upon the welfare of the
insured's business, and business success means, as a rule,
family happiness and contentment. On the other hand busi-
ness adversity practically always means family adversity, and,
therefore, business insurance which protects the business
against disaster is in reality also family insurance since it
preserves the family's interest in the income derived from that
business.
Related posts:
Two general benefits of life insurance

Two general benefits of life insurance

Two general benefits of life insurance not yet
discussed should briefly be referred to as vitally affecting the
entire community. These are:

1. Through their enormous investments life-insurance com-
panies have exerted a powerful influence in the upbuilding of
the industrial life of the nation. Two hundred and fifty-
nine companies, reported in the Insurance Year Book, 1913,
show total admitted assets of $4,658,696,337, of which
$1,617,873,512 represent investments in real-estate mort-
gages and $1,994,722,971 in corporate bonds and stocks. The
significance of these large totals becomes apparent when it is
stated that they represent the contributions over a long series
of years of millions of policyholders, each of whom has con-
tributed his little mite. The companies, in other" words, have
been the medium through which a vast aggregation of small
sums has been devoted to the furtherance on a large scale of
the nation's leading business interests. The investments of
nearly two billion dollars in bonds and stocks will be found
to be fairly well distributed over the principal transportation
and other corporate properties of the country and represent a
ven- substantial part of the total funds that have been neces-
sary for their development. The $1,600,000,000 of real-estate
mortgages also represent investments in properties located in
all parts of the country. Because of such loans, owners of
real estate have been enabled to erect buildings or otherwise
improve their properties. Xot only have large sums been
furnished for the development of cities and towns, but for
many years the companies have granted loans upon western
and southern farming lands, thus enabling the purchase,
stocking, and cultivation of large areas.

2. By carefully restricting the admission to membership
and by requiring answers to numerous questions relating to
intemperate habits, the applicant's attention is forcefully
directed to the close relationship between temperate living
and longevity. Physical ailments are also frequently dis-
covered for the first time as a result of the physical examina-
tions which the companies require all applicants to undergo.
The knowledge thus obtained leads to the application of
remedies, and results in the conservation of the value of many
lives for the benefit of the community.

The movement toward the conservation of health and life
is receiving increasing attention on the part of the com-
panies, and has been a subject for special consideration by
various prominent life-insurance associations. Various com-
panies are already pursuing a policy of disseminating advice
for the treatment of various diseases and of offering periodical
health examinations for the detection of ailments. While the
movement is yet in its infancy the tremendous possibilities
for good along this line cannot be overemphasized, and the
desirability of having life-insurance companies participate
actively in a comprehensive conservation movement is appar-
ent. The possibilities along this line have ably been set forth
by the Life Extension Institute, Inc. In a recent circular on
" Life Extension Service for Life Insurance Companies " the
promoters of this Institute show clearly the desirability of
" checking the life waste that is going on in our country as a
result of ignorance or defiance of the simple laws of health,"
and express their belief that " by the study of problems relat-
ing to national vitality, by disseminating knowledge of per-
sonal hygiene and the science of disease prevention, and by
offering and encouraging periodical health examinations to
detect disease in time to check or cure it, a substantial con-
tribution to longevity and to human happiness generally will
be made."


Related posts:
The Relation of the Foregoing Advantages to Society at Large

The Relation of the Foregoing Advantages to Society at Large

The Relation of the Foregoing Advantages to Society at
Large. The many advantages discussed in the preceding
pages, it is apparent, will greatly benefit the community as a
whole if life insurance is widely used. Mr. Holcombe writes :

It is clear that any agency which improves the mental or
moral attributes, or the material circumstances of any one of
its citizens, raises the condition of the community of which he
is a member, and thus benefits the state. Savings banks en-
courage thrift and produce accumulations which would in many
cases be otherwise wasted, and thus they constitute a distinct
and tangible benefit to the state. Life insurance promotes a
sense of responsibility, strengthens family ties, and thus ele-
vates the general character of the nation. It lessens those fam-
ily 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 tbe expense to the public treasury, of
almshouses and police, of criminal courts and prisons, and of
tbe various other necessary branches of the public service which
have to do with the prevention and punishment of crime, and
the relief of tbe suffering and unfortunate. ... It is certain
that in many cases tbe proceeds of a life-insurance policy are
practically all that remain at the death of tbe 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 charity. 1

The value of life insurance as an agency for increasing the
individual's sense of responsibility, and for relieving the com-
munity of much needless expense in supporting members of
destitute families, has been recognized for years by the govermnents
of all civilized countries. As early as 1840 the state
of New York enacted legislation to the general effect that any
life-insurance policy taken out for the benefit of a married
woman, or assigned to or held in trust for her, or which in
case of her death before payment is to inure to the use of her
or her husband's children, was to be free from all claims of
creditors. A large number of our states have since enacted
legislation substantially similar in character, the laws, how-
ever, usually providing that if the annual premium on said
insurance should exceed a stipulated amount (usually $300)
the excess together with interest should be available for
satisfying the claims of creditors of the person paying the
premium. Many foreign governments have also done every-
thing possible to encourage the taking out of life insurance
by adopting a very lenient policy of taxation, although this
very commendable method of encouraging the spread of
life-insurance protection has been neglected or refused by the
several American commonwealths.

Related posts:
Furnishes an Assured Income in the Form of Annuities

Furnishes an Assured Income in the Form of Annuities

Furnishes an Assured Income in the Form of Annuities.
Life insurance also proves valuable to a very considerable
number of people, who, as the result of a lifework have suc-
ceeded in saving only a limited amount of capital, and who
have no one to whom they particularly care to transfer this
sum in case of death. Thus, let us assume that a person aged
60 has accumulated $10,000, and that this represents the
entire estate available for the maintenance of the owner dur-
ing his later years. Owing to the limited size of the estate,
the owner will be obliged to invest the same in the most care-
ful manner, and the current rate of return for such invest-
ments would probably not exceed 4 per cent. Consequently
this individual's income will be limited to $400, an amount in-
sufficient for proper maintenance during old age. Xor can he
afford to take a portion of his principal for living expenses,
because this would reduce his annual income. The danger
confronting him is just the opposite of that facing the man
who wants insurance against death. The latter wants insur-
ance because he does not know how long he will live, while
the former is confronted with the danger of living too long,
i.e. of outliving his income.

Just as the man who felt that death might intervene too
soon, could hedge himself against that risk, so our owner of
the $10,000 fund, who feels that his income is too limited and
that he might outlive this income if he should resort to the
expenditure annually of a portion of the principal, can pro-
tect himself by buying an " annuity." An annuity is a con-
tract by which an insurance company promises to pay the
holder thereof a certain stipulated income every year as
long as he lives, the payment ceasing upon death. Thus, for
illustrative purposes, let us apply an annuity to a man agedr
60 who has saved $10,000, which sum, as stated, will yield only
$400 income a year if invested at 4 per cent. Now, to quote
the rates of a certain company for annuities, this individual
may deposit $1,066 and receive therefor a promise of an
income of $100 a year throughout life. This sum, it will be
observed, represents a yield of 9 per cent., or more than twice
as much as the assumed current rate of 4 per cent. The
older the annuitant is when he buys an annuity the larger is
the annual return the company can afford to give. Thus if
the individual, assumed in our illustration, should be sixty-
six years old this same company promises him $100 a year
throughout life for each $888 paid in, or over 11 per cent.
At age 70 the $100 annuity will cost only $630, or an annual
return four times greater than the 4 per cent, rate used for
illustrative purposes. If, therefore, the holder of a limited
estate does not particularly care to transfer his property to
some individual or institution, life insurance makes it possible
for him to pay the same to an insurance company in return
for a promise of a certain definite income a year, thus reliev-
ing him from all further worry as to the sufficiency of his
future income. The companies can afford to give these large
returns at the later years of life because the death rate at age
60 and thereafter is high and because of the understanding
that the annuities "will cease just as soon as the annuitant
dies, in which case the balance of the money deposited with
the company goes to the benefit of the other annuitants who
may survive.

Related posts:
Facilitates the Purchase of a Home

Facilitates the Purchase of a Home

Facilitates the Purchase of a Home. While this advan-
tage may be considered essentially a business one, it is men-
tioned here because of the enormous volume of outstanding
mortgages on homes and the direct bearing of this situation in
nearly all cases upon the welfare of the mortgagor's family.
One who has purchased or built a home with funds borrowed
on a mortgage which provides for payment at a specified date
is exposed to the danger of dying before a fund sufficient for
such payment has been accumulated. Let us assume that the
head of a family has mortgaged his home for $5,000 and
expects to pay off the same through a series of payments at
fixed intervals, such payments being made out of current earn-
ings. It is apparent that the fulfilment of this purpose is
dependent upon the mortgagor living long enough to earn
the amounts necessary to make the periodic payments. Pre-
mature death, however, after only a few payments have been
made, may seriously jeopardize the welfare of the family, since
the remaining members of the household may be unable to
effect a settlement of the mortgage and thus prevent a fore-
closure on their home at a time when troubles are amply
abundant. Here life insurance, involving only a moderate
cost, affords an excellent protection against such a contin-
gency. A $5,000 life-insurance policy may be taken out by
the mortgagor to hedge his $5,000 mortgage. If his life is
spared he will pay off the mortgage and because of a little
extra thrift, will also be the holder of $5,000 life insurance,
the beneficent purpose of which as family protection will by
that time be appreciated. If death, however, should occur
when only $1,000 has been paid on the mortgage, the proceeds
of the policy become immediately available for the extin-
guishment of the balance of $4,000. The family thus becomes
possessed of full title to the home, while the balance of $1,000
of life-insurance money will prove exceedingly welcome as a
means of tiding over the period of adjustment that nearly
always arises when the breadwinner is removed by death.

The same situation also presents itself on every hand among
the large farmer and retailing classes of the country. Here
a vast volume of mortgages covers the farms and small retail
establishments in which the mortgagors' families have a vital
interest. Foreclosure of the property in case of failure to
meet the mortgage because of the mortgagor's untimely death,
or serious hardship on the part of the heirs in attempting to
pay off the mortgage, can easily be obviated through the use
of life insurance. The possibilities of the spread of life in-
surance among the farmers of this country are exceedingly
great, because as a class they stand sadly in need of its pro-
tection and at present know comparatively little about its
usefulness.


Related posts:
Forces and Encourages Thrift

Forces and Encourages Thrift

Forces and Encourages Thrift. Not only does life in-
surance render safe the insured's effort to accumulate a fund
through saving by hedging him against early death, or itself
furnish a profitable and safe investment, but for the great
majority of people it constitutes an excellent means of en-
couraging and even forcing thrift. There are few institutions,
if any, which have given such excellent schooling along this
line. Savings banks, of course, do their share in developing
the saving instinct among the masses and building and loan
associations have also assumed a prominent position in this
respect. But, usually, institutions of this character have the
shortcoming that they permit the depositor to withdraw all
or nearly all of the funds after giving notice of a certain num-
ber of weeks, with the result that a resolution to save over a
long period may be broken when the depositor for one reason
or another sees fit to withdraw the amount deposited.

In life insurance nearly all the types of contracts sold con-
tain a savings feature, and this is especially true of the so-
called endowment policy which, as will be explained more fully
later, promises the payment of a stipulated sum not only upon
the death of the insured during a given term of years but also
upon his survival at the end of that term. Of course, in order
to receive, say, $10,000 at the end of fifteen or twenty years the
insured is obliged to pay to the company a sufficient amount
in annual, semi-annual or quarterly premiums to enable the
company, after improving these payments at compound inter-
est, to accumulate a fund by the end of the period which will
equal the sum stipulated in the contract. Whatever the policy-
holder has accumulated to his credit cannot as a rule be
withdrawn from the company during the first two or three
years, and it is also the general practice to apply a penalty
in the form of a surrender charge in case of withdrawal dur-
ing a considerable number of years following the payment of
the third premium. Furthermore, the regular pavment of
the premium from year to year will soon be looked upon by
the insured in much the same manner as he comes to regard
interest upon a mortgage. Consequently to secure the neces-
sary funds to pay the premium his industry will be con-
siderably enhanced or his efforts to save the required premiums
out of income will be increased. In fact, it is the common
assertion of innumerable individuals who were the holders of
endowment policies that at the end of fifteen, twenty, or
twenty-five years they became the possessors of a considerable
sum of money which, under other circumstances they would
never have accumulated, or which, if they had done so, would
have been lost or dissipated. Life insurance, in other words,
tends to bring about compulsory saving, and represents the
accumulation of small sums (which in all probability would
not otherwise be accumulated) over a long period of years into
a substantial sum. In brief, life insurance generally bears
th relationship to thrift that the modern utilization of by-
products (largely wasted in former years) bears to many of
our leading manufacturing enterprises of to-day.

Related posts:

Life Insurance Makes Saving Possible

Life Insurance Makes Saving Possible

Life Insurance Makes Saving Possible. One constantly
meets with those whose argument against life insurance is that
they prefer to save. The habit of saving should by all means
be encouraged, but it should be borne in mind that the saving
of a competence involves the necessary time to save, and that
life insurance is the only certain method to use as a hedge
against the possibility of the saving period being cut short.
A policy of saving can yield only a small amount at the start,
while a policy of insurance from its beginning guarantees the
full face value and thus safeguards the policyholder against
failure through early death to have sufficient time to save
adequately through other channels. Thus, if one is able to
save $500 annually it will take nearly fifteen years to accumu-
late a fund of $10,000, assuming that the accumulations are
safely invested annually at 4 per cent, compound interest.
Yet the resolution of the head of the family to protect the
home with such a savings fund is contingent upon his sur-
viving the full period, and may be defeated by death before
the savings have reached any appreciable sum. To depend
entirely on saving as a means of providing for the future of
the family is, to say the least, a highly uncertain policy to
pursue. The first requisite in providing for the future sup-
port of dependents is absolute certainty, and this can be
secured only by using life insurance as a hedge against the
possible failure to continue the annual accumulations to the
savings fund because of early death. Through life insurance
the suggested fund of $10,000 can be assured in any case.
Upon death the insurance company pays the face of the policy,
while in case of survival the insured is given the necessary
time to accumulate a competence.
Moreover, the roseate views which so many hold concern-
ing their resolution and ability to accumulate and keep should
be tempered by a frank statement of the distressing facts as
they actually exist. Eighty-five per cent, of this country's
adults leave no estate at all, and about one-third of the
widows in the country lack the necessities, and 90 per
cent, the comforts, of life. The habit of saving, as already
stated, should be encouraged, but the foregoing facts clearly
indicate that it is unwise to practice saving to the exclusion
of life insurance. Both should be practiced, and, if only one
is possible because of limited means, insurance should be
selected because of its much greater certainty in leaving a
stipulated fund for the support of the family whenever the
breadwinner's income-producing capacity ia cut short by death.
Furnishes a Profitable and Safe Investment. In addi-
tion to guaranteeing an estate at once, life insurance contains
an investment feature which is absolutely safe and which
reaches large proportions in the later years of the policy.
With the exception of a few types of policies only, life insur-
ance represents an accumulation of savings admirably adapted
to put small sums of money to prompt and profitable use, and
in this respect has been aptly defined as " compound interest
in harness." As will be explained later, nearly all types of
life-insurance policies gradually accumulate a so-called sur-
render value which may be withdrawn by the insured if he
decides to discontinue the policy. This value, as will be
shown later, represents an accumulation of a portion of the
premiums paid by the policy holder which the company
promptly invests at an assumed rate of interest ; and in mutual
companies the interest earnings in excess of this assumed rate
are returned to the policyholder. In other words this value
of the policy represents savings left with the company. Past
experience shows that on the average life-insurance companies
have earned on the savings left with them by policyholders
the largest interest returns consistent with safety. Owing to
the mathematical and scientific character of life insurance
and the stringency of government supervision of the com-
panies, there has not been a failure of a large and well-
established life-insurance company in the last quarter of a
century, and this is true despite the fact that we have wit-
nessed three severe financial panics during the last twenty-
five years. Nearly every company devotes the greatest care
to its investments, which are spread out over such a large
number of securities and other forms of property that a loss
on one investment will be fully counterbalanced by profits on
another. The investments of nearly every large company are
in the special care of investment managers, and the skill with
which they are made may be illustrated by the experience of
one of the largest companies in America, which, valuing its
securities at the lowest quotations prevailing in the severe
panic of 1893, could still show an excess of $20,000,000 over
and above the purchase price of those same securities. More-
over, an examination of the present earnings of life-insurance
companies, shows that the great majority make between 4^
and 5 per cent, on their total assets, while in some instances the
returns exceed this amount.
Not only does life insurance thus furnish a profitable and
safe investment, but modern policies also make it possible
for the insured to arrange for the safeguarding of the pro-
ceeds of the policy upon his death for the benefit of his bene-
ficiaries. Too frequently the competence which a husband
or father has provided through saving or insurance is quickly
lost by the heir or beneficiary through speculation, unwise
investments, or excessive expenditures for unnecessary com-
forts. Such a contingency should always be contemplated by
the insured and may be prevented in various ways. Modern
income policies, especially, furnish a guarantee against such
a contingency by providing that the beneficiary shall, follow-
ing the death of the insured, receive during the whole of her
life, or for a designated number of years as the case may be,
an annual, quarterly or monthly income of a stipulated sum.
Or, instead of having the proceeds of the policy paid in one
lump sum upon death, the insured may arrange to have the
company retain the sum upon the maturity of the policy and
pay the same in a designated number of installments. Again,
the proceeds of the policy may be left with the company for
safe-keeping for a designated number of years.

Related posts:
The Duty to Insure

The Duty to Insure

The Duty to Insure. Since life insurance furnishes the
surest method of hedging the family against the uncertainty
of life, it is essential that all who have assumed family obliga-
tions should use it as a means of protecting dependents against
the want that may be occasioned by an untimely death. The
capitalization of the value of a human life for the benefit of
the household depending upon it is a fundamental duty that
should be given the widest publicity through the pulpit, the
school and the press. In the great majority of instances,
life insurance is the only recourse open to the man of moder-
ate income who finds it difficult or impossible by force of cir-
cumstances to accumulate a savings fund for those dependents
who may outlive him.

The growth of life insurance implies an increasing develop-
ment of the sense of responsibility. The idea of providing
only for the present must give way to a recognition of the fact
tyhat a person's responsibility to his family is not limited to the
years of survival. Emphasis should be laid on the " crime of
not insuring," and the finger of scorn should be pointed at
any man who, although he has provided well while alive, has
not seen fit to discount the uncertain future for the benefit
of a dependent household. As already explained, life in-
surance is the only sure means of changing uncertainty into
certainty and is the opposite of gambling. He who does not
insure gambles with the greatest of all chances and, if he loses,
makes those dearest to him pay the forfeit. That the gamble
is a risky one is easily demonstrated by any mortality table,
and even if life is granted until age 50, let it not be overlooked
that less than one in ten of our population succeeds in accumu-
lating a reasonable competence, and that through reverses a
great majority of this limited number lose the same by the
time that age is reached. Woman's rights as well as her duty
in the matter of life insurance should also be emphasized.
She should be taught that it is not only her husband's duty
adequately to protect the family, if that is at all possible, but
that it is also her duty, if necessary, to use her persuasive
powers to get him to act, and if that does not avail, to insist
on action as her right. Not only has she a right to personal
protection, but her rights as regards life insurance are further
increased by her interest in the children which are as much
hers as they are her husband's.

In addition to the advantage of life insurance as a direct
protection to the family, it also benefits the policyholder per-
sonally in a number of important ways. Six advantages deserve
special mention in this respect and all, it should be
noted, redound to the benefit of the policyholder's family by
qualifying him better to meet its obligations and to protect
its comfort and happiness.

Eliminates Worry and Increases Initiative. Writers
have frequently asserted that life insurance is not to be re-
garded as a producer of wealth but that its function is merely
to distribute funds from the fortunate to the unfortunate.
In reality, however, life insurance will be found to be a
powerful indirect force in the production of wealth in that it
relieves the policyholder of worry and increases his efficiency.
Constant worry is one of the greatest curses that can fall to the
lot of man, and life insurance, if universally used, would lift
that curse from innumerable shoulders. The knowledge of
an assured estate from the moment the premium is paid will
enable the insured to feel freer to take the initiative. Let
us assume that the head of a family is the possessor of $10,-
000 and is afforded an excellent opportunity for the invest-
ment of this capital in a business pursuit. If it were not for
life insurance the owner of this capital could not safely afford
to invest this sum and assume the speculative hazard con-
nected with most business enterprises because of the fear that
this capital might be lost, and that in case of premature death
no provision would exist for those dependent upon him. Life
insurance, however, furnishes a hedge against such a con-
tingency and assures the prospective investor in this instance
that in case of his death and the loss of his investment, the
insurance company will reimburse his dependents to the ex-
tent of $10,000. By thus removing a load of care from the
mind Life insurance promotes efficiency and makes life hap-
pier. For this reason life insurance should be regarded by
the average man as one of his most treasured possessions, and
premium payments should not be looked on merely as an
expense to be grudgingly borne. It may safely be stated that
the possession of an adequate amount of life insurance causes
the average policyholder to eat better, sleep better, feel better,
and as a result of these, to work better.


Related posts:
The principles of life insurance

The principles of life insurance

Capitalization of the Value of a Human Life and In-
demnification of That Value. Recognizing the value of a
human life from both the family and the business standpoint
(the two being nearly always closely interrelated), it should
next be noted that life insurance constitutes the only safe
method of indemnification against the loss of that value
through death. Briefly stated, life insurance makes possible
the capitalization of that value. By furnishing this capitalized
value in the event of death, life insurance may be said to per-
petuate the earning capacity of the life for the benefit of those
dependent upon it. Through experience and toil the human
life may be constantly growing more valuable, the dependent
family in the meantime becoming more and more accustomed
to a higher standard of living, and suddenly this entire value
may be swept away by death. Unless some substitute some
sort of hedge can be found there will be nothing to take the
place of the economic value of the deceased. Life insurance
constitutes such a hedge and it should be the purpose of every
man who has assumed family obligations to take out such an
amount of insurance to capitalize himself to such an extent
that the principal if put out at the current rate of interest
will yield an income equivalent to from one-third to one-half of
his earning capacity during life. Nearly all other values are
being capitalized in this modern age, and it is entirely proper,
in fact essential, that the value of a human life should also be
capitalized.
This naturally brings up the question as to how much life-
insurance protection should be taken out for dependents.
While this is a practical question opinions differ greatly
and everyone must answer the question according to his
opportunities and obligations. One rule which has been fre-
quently advanced, and which assumes that there should be a
continuance to the family of at least one-half of the current
income earned by the insured at the time of death, is to the
effect that " A man's life insurance should be large enough,
when invested at the current rate of interest, to produce an
income half as large as he earned while living." Others try

to arrive at some rough answer to this question by ascertain-
ing the principal which ought to pass upon death to the fam-
ily of the insured in order to purchase an " income equal to
the insured's probable earnings should he survive." Assum-
ing that a $500 income is under consideration, the following
table will serve to indicate the present value, at 4 per cent,
interest, of such an income during the expectancy of life at
various ages, according to the American Experience table of
mortality. Thus, as the management of one company states :
" At age 30, a sum of $9,332, computed at 4 per cent, interest,
or of $8,187, computed at 5 per cent., would be required to
produce an income of $500 per annum for thirty-five years,
which is the life expectancy of a person aged 30, and an
insurance of $9,332, or of $8,187, according to the rate of
interest, would be required to indemnify his family fully for
the loss of $500 income which would be occasioned by his
death thirty-five years in advance of his expectancy." If an
income of $1,000 per annum were under consideration the
amount of insurance would be twice that-ondicated.


Related posts:
Family and personal uses of life insurance

Family and personal uses of life insurance

The primary purpose of life insurance is the protection of
the family. Every family is dependent for subsistence upon
an income which necessarily varies in amount with the par-
ticular circumstances surrounding its case. In some in-
stances this income is obtained from the return on invested
funds which have been accumulated or inherited, but in the
overwhelming majority of cases the subsistence of the family
depends upon the current earnings of the husband. He is the
breadwinner who has definitely assumed responsibility for the
support of those dependent upon him, and his wife and chil-
dren have a right to look to him for adequate maintenance.
His life has a value (and the same is also often true of the
mother or son) to the dependent members of the family, and
it is this value of one life in its relation to another that justi-
fies the existence of life insurance. If a man owns a house
or other destructible property he usually allows little time to
pass before insuring it in some fire-insurance company. Yet
why consider the value of property as more important than the
value of the life of the owner, when in the great majority of
instances the value of the latter to the family exceeds that of
the former? Moreover, the property may never burn or be
otherwise destroyed, since it appears that only about one fire
occurs to every one hundred and seventy-five fire policies,
while death is certain to happen. As Benjamin Franklin
aptly stated: "A policy of life insurance is the oldest and
safest mode of making certain provision for one's family. It
is a strange anomaly that men should be careful to insure
their houses, their ships, their merchandise, and yet neglect
to insure their lives, surely the most important of all to their
families, and more subject to loss."

Related posts:
Nature of life insurance and the basic, part3

Nature of life insurance and the basic, part3

Part1 of "Nature of life insurance and the basic" can be found here
Part2 of "Nature of life insurance and the basic" can be found here

To insure a single life for $1,000 during a given year, it is
clear, is in the nature of a gamble, because the individual must
either die or survive that period, with the result that there is
either a 100 per cent, loss or gain. If the number of per-
sons insured is increased to one hundred the element of un-
certainty will still be present to a large extent, although the
variations in the number dying or surviving the year will be
much less than that noted in the preceding case. But if
500,000 lives of similar physical condition are combined in the
same group, and more than that number of lives are now in-
sured in each of several American companies, the fluctuation
in the rate of death from year to year will vary only by the
smallest fraction of 1 per cent., with the result that the com-
pany will be able to determine in advance the amount of its
death claims and thus to place its business upon a non-specu-
lative basis. In fact, if the number of lives insured by a com-
pany were so large as to make the application of the law of
average perfect, practically all uncertainty as to the amount
of loss that would be experienced during a given period would
be removed.

When the insurance is furnished by a company with capital
or surplus which answers as a given guarantee of stability, it
becomes a business, instead of a speculation, the distinction
being that while an individual who assumes a single risk either
loses or gains thereby the whole amount involved, the company
which takes many, by means of the aggregate business reduces
the possible variations to narrow limits and really makes of
insurance a business attended with less peril than almost any
other. . . . During a given year an individual either dies or he
survives the year; the result is a 100-per-cent. loss or
a 100-per-cent. gain, if one wagers upon the one life. But
make one hundred thousand of these bets upon persons of
the same age and like physical condition and the variation in
the result will not be 2 per cent, usually, instead of 200 per cent.
There is nothing more uncertain than life and nothing more
certain than life insurance.

Necessity of Accumulating a Fund for the Payment of
Claims. While all forms of insurance are alike in that they
require for their successful operation a combination of many
risks into a group, they are vitally different as regards the
nature of the risks covered. In this respect the chief differ-
ence between life and other forms of insurance is that in the
latter the contingency insured against may or may not hap-
pen, and as regards the great majority of policies written,
does not happen, while in life insurance the event against
which protection is granted, namely death, is a " hazard con-
verging into certainty." It is necessary, therefore, if a life-
insurance policy is to protect the insured during the whole of
life, to provide not only against the risk of death each year,
but also to accumulate an adequate fund for the purpose, as
Mr. Dawson states, "of meeting at the ultimate limit of
human life an absolutely certain claim if one has up to that
time been escaped." He further adds : " It was failure to
see the necessity for providing for an increasing hazard, con-
verging into certainty, which has caused many serious errors
in the fundamental plans of some institutions formed to
furnish life insurance, and the thing which separates plans
of insurance into sound and unsound is precisely whether
intelligent regard for this principle has guided the company
in determining its rates of premium and the management and
disposition of its funds."

Nature of life insurance and the basic, part2

Part1 can be found here

But while the institution of life insurance was first care-
fully studied and applied in Great Britain, its greatest growth
has been in the United States, dating chiefly since the Civil
War. A few figures will make clear the extent and rapidity
of this development. Exclusive of annuity contracts, it has
been estimated that the total number of life-insurance policies
in the United States at the beginning of the nineteenth cen-
tury did not exceed one hundred.* By 1860 the companies
reporting to the Insurance Department of the State of New
York showed a total of only 56,000 policies with a face value
of $163,000,000, while the annual premium income amounted
to only $4,700,000 and the assets to $24,000,000. By 1870
the companies authorized to do business in the state of New
York showed the following totals : Annual premium income,
$90,000,000; number of policies, 740,000; face value of in-
surance, $2,000,000,000; and assets $270,000,000. 5 During
the next decade the companies experienced a decline, but following
1880 the business enjoyed a phenomenal and almost
uninterrupted growth.

It is possible to present only approximately the total in-
surance carried by the numerous corporations and associations
now operating in the United States. Some idea, however, of
the present magnitude of the life-insurance business in the
United States may be obtained from the aggregates for the
year 1913, published in the Insurance Year Book. At the
close of that year, it appears that as regards 259 companies
the amount of insurance in force aggregated $20,564,000,000,
the annual premium income $715,000,000 and the total in-
come $925,000,000, the annual payments to policyholders
$468,000,000, and the admitted assets $4,658,000,000. To
these enormous totals, however, it is necessary to add the
business of the numerous fraternal orders which grant in-
surance. At the close of 1913, 509 such orders carried certifi-
cates aggregating $9,622,000,000 while their annual income
amounted to $144,000,000, their annual claims to $101,000,-
000, and their assets to $183,000,000. The vastness of these
figures can scarcely be comprehended. They testify to the
fact that the value of life-insurance protection is rapidly being
recognized by the rank and file of the nation's population.
At present over 32,000,000 policies and fraternal certificates,
aggregating over $30,000,000,000 of insurance, are carried in
the United States, and over $569,000,000 is distributed an-
nually in claims; yet these enormous figures are small com-
pared with what they will be at the close of the next genera-
tion.

Combination of Many Risks into a Group Is Necessary
to Make the Law of Average Apply. Our definition of life
insurance, it will be recalled, involved "the transfer of risks
of many individuals to one person or a group- of persons."
Such a combination of risks is absolutely essential if the busi-
ness is to be established on a basis other than speculation or
gambling. To eliminate the speculative factor it is necessary
to proceed on the theory that the larger the number of separate
risks of a like nature combined into one group, the less un-
certainty -will there be as to the amount of loss that will be
incurred.

Nature of life insurance and the basic, part1

Definition and Extent of Life Insurance. Mankind is
exposed to many serious hazards such as fire, disability and
premature death, the happening of which, from the stand-
point of the individual, it is impossible to foretell or pre-
vent, but the effects of which, such as the loss of property or
earnings, it is highly important to provide against. It is
the function of insurance in its numerous forms to enable in-
dividuals to safeguard themselves against such misfortunes
by having the losses of the unfortunate few paid by the con-
tributions of the many who are exposed to the same risk. If
the hazard under consideration is that of premature death,
the loss suffered is indemnified through life insurance. From
the community standpoint life insurance may be defined as
" that social device for making accumulations to meet uncer-
tain losses through premature death which is carried out
through the transfer of the risks of many individuals to one
person or a group of persons." * From the standpoint of the
individual, however, life insurance may be defined as con-
sisting of a contract, whereby for a stipulated compensation,
called the premium, one party (the insurer) agrees to pay the
other (the insured), or his beneficiary, a fixed sum upon the
happening of death or some other specified event.

Life insurance had its origin much later than the leading
forms of property insurance and its real rise to importance
dates back only about half a century. The first attempts at
associated life insurance, as far as is known, were undertaken
in Great Britain. In 1699 there was formed "the society of
the Economic Theory of Risk and Insurance for Widows and Orphans "
and in 1706 " The Amicable Society for a Perpetual Assurance Office."
It has been estimated that between 1699 and 1720 probably fifty life-
insurance schemes were started in Great Britain, 2 but all were
conducted under methods very defective as compared with
those now in general use; in fact, Mr. Holcombe concludes:
" It may be taken as established that no plan of life insurance
as we now understand it had been contemplated by any com-
pany or society, or had been considered by any legislature in
Europe prior to the year 1760." 3 In 1762, when the total
amount of life insurance in Great Britain is said not to have
exceeded 350,000, the Equitable Assurance Society of London
commenced operations, and this society may be regarded as
the first to use the modern system of insurance, its policies
being issued for fixed amounts and the premiums graded ac-
cording to age.