Functions of Endowment Insurance. In the past endowment insurance was frequently advertised as " investment insurance " without making proper reference to the cost of the insurance protection. But as Mr. Dawson states in considering endowment and limited-payment policies as an investment, "a life-insurance policy, at the best, can be compared as an investment with other investments, not accompanied with life insurance, only when a proper allowance is made for the cost of the life insurance. ... It behooves the company as a matter of fairness both to make it plain that at the best the investment is good, only in case the form of the protection is considered, and then to render the handicap as little as possible by loading endowment and limited-payment life premiums justly." The real function of endowment insurance is not to yield a large investment return but rather to furnish a means of inculcating the saving instinct and to afford a sure method of providing against old age or some other specific contingency by accumulating a definite sum of money within a definite time. Briefly stated, endowment insurance may be defended under proper conditions because of its usefulness in four main ways, namely:
1. As an incentive to save. The argument most generally advanced in favor of endowment insurance is that it constitutes a sure method for systematic saving in that it provides for the laying away of a moderate sum each year with a view to having all the accumulations returned in one sum at the end of a fused period. This era is recognized as a particularly extravagant one, and vast numbers of young
men, because of extravagant habits, never save a dollar although receiving good incomes. For such persons an endowment policy generally turns out to be a means of forcing thrift, since it compels them to do that which, if left entirely to their own option, would remain undone. By requiring the payment of specific sums at regular intervals during a period of years, endowment insurance enables many to save a sum worth while, without being conscious of the sacrifice, whereas haphazard methods of saving seldom achieve this result. " Such a policy/' as has been said, " gives a person a definite aim he must save just so much every year, and experience soon teaches that he can do it easily." It should also be emphasized that in ever so many instances the difference between the premium on an endowment policy and some other kind of contract requiring a smaller payment would not be saved were it not for the voluntarily assumed sacrifice of paying the higher rate. Endowment insurance, therefore, as it concerns those who find it difficult to save, represents a means of utilizing the by-product of their earnings the small sums otherwise wasted in needless expenditures for the accumulation of a competence. And even assuming that these small sums are not wasted, it would still be true that in probably the majority of instances, they would be invested injudiciously and would be subject to the hazard of business, or even if carefully invested would be withdrawn under the temptation of speculation or luxury.
It is also contended by many that endowment policies maturing in, say, twenty years afford to many young men, especially if they labor under the difficulty of not being able to save or keep their savings, the advantage of yielding a cash capital " at the prime of life when, ripened by years of experience, they can use it to the best advantage." Strange as it may seem many of the nation's most prominent business
men, who we would think could currently use all spare funds to the best advantage in their business, have publicly emphasized this feature of endowment insurance. Only a few years ago one of the leading merchants of this country in addressing a meeting of life-insurance agents related how he had been induced to take one endowment policy after another until he carried a huge amount of this type of insurance.
He explained its advantages to him as a means of compulsory thrift, of accumulating sums little by little until a large fund existed, and expressed his belief that if it had not been for the sum realized upon the maturity of his endowments he
might never have erected his splendid store.
2. As a means of providing for old age. Endowment insurance, if the term is so selected as to make the policy mature at an age like 60, 65, or 70, may serve as an excellent method of accumulating a fund for support in old age. Many who oppose endowments maturing at earlier periods because of their greater cost are ardent supporters of long- term endowments maturing at an age when a man's earning
capacity usually ceases and when he naturally expects to retire from actual work. Statistics show that less than one man in ten succeeds in laying up a competence by the time this age is reached. Most men are therefore confronted with
two contingencies: (1) an untimely death may leave their families unprotected, and (2) in case of survival until old age they may lack the means of proper support. Both of these contingencies may conveniently be provided against by a long-term endowment. If death should occur at any time during the term, the insurance proceeds revert to the family; but should the insured survive to old age, when the need of
insurance for family protection has largely or altogether passed away, he will himself receive the proceeds of the fund which his prudence and foresight enabled him to accumulate, to be used for his own support and comfort.
In this connection it should be remembered that a wholelife policy, based on the American table of mortality, is an endowment at age 96, since this age according to that table is considered the extreme limit of life. At age 25 a whole-life policy is, therefore, an endowment policy for a term of seventy-one years. Xow those upholding long-term endowments take the position that it is most illogical to choose age 96 as the age when the insured shall have completed his savings fund under the policy, and that it accords much more with the real needs of the average man to move the maturity of the contract from the ridiculous age of 96 to the more reasonable
age of 60 or 65, when the need for insurance protection is usually small while the need of a fund for comfortable maintenance in old age is usually pressing. Especially, it is argued, should this change to an earlier date of maturity be
provided when the difference between the premium on an ordinary life policy and that on an endowment maturing at, say, 65 is so small that its payment does not involve any appreciable sacrifice and would in all probability not have been saved except for the voluntary determination to pay the slightly higher premium. Thus at age 25, using the aforementioned rates, the premium on a forty-year endowment
is $21.80 as compared with the premium of $19.00 for an ordinary life policy, or a difference of $2.80. As regards a forty-five-year endowment maturing at age 70 the difference between the two premiums charged by this company is only $1.20. In
other words, the payment of this slight extra sum each year during the forty- or forty-five-year period insures the payment of the full amount of the policy in case of survival at age 60 or 70.
3. As a means of hedging against the possibility of the saving period being cut short by death. Reference has been made several times to the fact that the saving of a competence involves the time necessary to save and that life insurance affords the only known method of protecting person against the possibility, owing to an untimely death, of not being able to accumulate the desired amount. Were it not for the uncertainty of life and the inability of most people to carry out their resolution to adhere to a definite plan of saving the accumulation of an estate could readily be accomplished by the deposit of certain sums at regular intervals. But, as we have seen, the effort to save a fixed amount is confronted by two dangers : ( 1 ) death before there has been time to save the desired amount, and (2) failure of the individual to continue his plan of saving or to keep intact what may already have been accumulated.
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