Two other types of insurance policies should be mentioned under our
classification of policies according to the method of paying
the proceeds, viz, so-called " reversionary annuities " and
" gold " or " debenture bonds' The first type of contract,
said to be the first form of installment insurance written, pro-
vides a life annuity to the beneficiary in case of the insured's
death before the beneficiary's death. If, however, the bene-
ficiary should die first, the insurance contract is regarded as
having expired and all premium payments are considered fully
earned. The debenture gold bond plan, like the installment
feature, may be applied to any of the ordinary types of policies
written. According to this plan, considered in connection
with a whole-life policy, the company retains the entire pro-
ceeds of the policy upon the death of the insured and issues a
bond to the beneficiary bearing an agreed annual, or semi-
annual rate of interest. At the expiration of the interest-pay-
ing period such as ten, fifteen, or twenty years, the bond is
redeemed. Usually the interest rate promised is high as com-
pared with the rate of interest which life-insurance companies
use in the computation of their rates. This high rate of in-
terest on the bond is entirely feasible owing to the fact that
the company will have safeguarded itself in advance by charg-
ing a higher premium during the lifetime of the insured.
Thus, according to the rate book of a certain company, the
annual gross rate for a 5-per cent, twenty-year gold bond on
the ordinary life plan is given as -$25. 74, while the annual level
premium for an ordinary life policy at the same age is given
.0.14. In both cases the mathematical computation was
based on the same assumed rate of interest, and the larger pre-
mium in the case of the bond is simply charged to assure the
accumulation of a sum of money sufficiently large to enable the
company to guarantee the promised rate of interest on the
bond. It is thus apparent that any rate of interest, no mat-
ter how high, may safely be promised if the difference be-
tween that rate and the assumed rate for computation pur-
poses is collected in the form of higher premiums.
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Classification of policies. Part3
