Advantages of the Limited-Payment Plan

Having re-
ferred to the shortcomings of limited-payment policies when
viewed in the light of special circumstances, we may next
note the conditions under which this method of paying pre-
miums may prove desirable. Certainly, the willingness to
pay a larger annual premium must be justified by advantages
which will compensate for the sacrifice. Two important ad-
vantages present themselves and may be stated briefly as
follows :

1. Premium payments may ~be limited to the produc-
tive period of life. Instead of continuing for an indefinite
period, the premium-paying years may be so limited in num-
ber as to correspond to the income-producing years. Not
only is there satisfaction for many people in knowing the
maximum amount which they can be asked to pay on a pol-
icy, but for the great majority of men between the ages of
25 and 40, engaged in the average walks of life, the next
thirty, twenty, or fifteen years, depending upon the age under
consideration, represent the really productive period of their
working lives. As regards the great majority, these years,
and not the years of old age, can through a little extra effort
and economy be made the years of surplus. It is therefore
argued that the average man should take advantage of that
period in his working life when money comes in most freely,
to pay a somewhat higher premium, in order to free himself
in old age from any payment whatever. Using the rates
cited above, a person insuring at age 25 is given the option
by the company of making his whole-life policy paid-up bj
the time he becomes forty-five years old by paying an extra
annual sum of $7.75 per thousand dollars of insurance for
twenty years. As previously stated, less than one in ten of
our population succeeds in accumulating a reasonable com-
petence by the time age 50 is reached, and through reverses in
business or investments a great majority of this limited
number lose the same before death. Now why not use the
productive years, the supporters of the limited-payment plan
argue, to protect one's insurance against such a contingency?
As the management of one company admirably states in re-
ferring to a twenty-payment life policy : *

The period, of twenty years is not so short as to make the dis-
count of future payments too heavy, nor so long as to extend
these payments far into the future, thereby defeating the wise
purpose of avoiding them late in life. . . . After twenty years
the insured has completed his side of the agreement and reaps
the reward of prudence and persistency. His estate, the value
of the policy, is an accomplished fact bought, paid for and
standing to his credit. Nothing can take it from him, nothing
can reopen the account it is beyond peradventure. At his
death the company instantly discharges its side of the contract
by the simple transfer of the property. . . . Here then, is a
present plan for future security. The ordinarily vigorous and
most productive years of life pay toll for the fullness of years
sometimes attained without fullness of pocket. Thus the bur-
den is put where it can more easily be carried, and the relief
in later life always abundantly justifies the earlier foresight.

2. Combines saving with insurance. The limited-
payment life policy affords the advantage of combin-
ing saving with insurance, assuming that the policyholder
desires to accomplish this purpose, to an even greater degree
than was noted in connection with whole-life insurance by
continuous payments.

Related posts:
Disadvantage of Continuous Premium Payments

Combines Saving with Insurance

Combines Saving with Insurance. Besides its moderate
cost and the permanent character of the protection offered,
the ordinary life policy furnishes the further advantage of
combining saving with insurance. In term insurance, as
already explained, nearly all of the premium represents pay-
ment for the current protection, and the companies follow the
practice of not refunding anything upon withdrawal. More-
over, under term insurance nothing is paid to the insured in
case of survival at the expiration of the term, and it is this
fact that constitutes one of the chief objections to this type of
insurance, it being most difficult, as previously stated, to
make the average holder of such a policy, after he has paid
ten or twenty premiums, appreciate the fact that he has al-
ready received full value in the form of protection for the
premiums paid, and that he is therefore not entitled to receive
any refund.

As contrasted with this shortcoming, the ordinary life pol-
icy presents an entirely different situation. In the early
years of such a policy the annual level premium is much in
excess of the amount required to pay the current cost of the
insurance protection, the balance being retained by the com-
pany as a reserve (called the legal reserve) and improved at
compound interest at an agreed rate for the purpose of
making good the deficiency in the later years of life when the
annual level premium is no longer sufficient to pay for the
actual cost of the insurance. The overcharges in the early
premiums are instrumental in inculcating thrift on the part
of the insured and in the great majority of instances, repre-
sent a saving an accumulation of small amounts promptly
invested by the company which would otherwise not have
been earned or, if earned, would have been lost or needlessly
wasted. The fund thus accumulated out of the overcharges
in the early premiums does not belong to the company, but is
held in trust by it for the policyholder. It represents the
" cash value " of the policy, and may either be withdrawn by
the insured, in whole or to a certain designated percentage,
if 7 he decides to lapse the policy, or be made the basis of a
loan, usually at 5 or 6 per cent., to be used in time of illness,
financial emergency, or business opportunity. The loan privi-
lege also is often valuable in that it enables the insured to
keep his policy alive for its full amount under temporary cir-
cumstances when the payment of the premium would other-
wise not be possible. The extent to which such cash or loan
values accumulate may be illustrated by the table on page 75,
which furnishes the figures for the first twenty-five years of
a $10,000 ordinary life policy issued by a company which
grants such values at the beginning of the third year and to
the full extent of the legal reserve.

Usually cash or loan values are not granted by the com-
panies until at least three annual premiums have been paid.
Usually, also, the companies do not refund the entire legal
reserve during the first ten, fifteen, or twenty years, but retain
a fixed percentage thereof as a surrender charge. In the
above illustration it will be observed that the cash value of
the $10,000 policy has accumulated to $4,254.90 during the
first twenty-five years, and this accumulation continues until
it reaches the face value of the policy by age 96, the last
year in the American Experience table.

Related posts:
Furnishes Permanent Protection

Furnishes Permanent Protection

Furnishes Permanent Protection. Several advantages
may be noted as essentially associated with this plan of
insurance. In the first place it gives the insured permanent
protection at moderate cost, and this is highly important for
the average man of moderate salary or daily wage who re-
quires considerable family protection and whose limited in-
come does not enable him both to pay premiums and to ac-
cumulate a savings-bank fund. Term insurance is essentially
designed to afford protection against a temporary family or
business hazard, and can be recommended safely only when
it is definitely known that the hazard under consideration is
temporary in character. But such contracts, as we have noted,
contain elements of danger which are inseparable from tem-
porary insurance. The chief danger connected with such
insurance is that the insured may have miscalculated the
duration of the hazard confronting him and his future need
for protection, or may neglect to carry out his original pur-
pose to convert his temporary insurance into or replace it
with policies which afford protection for the whole of life.
Under ordinary life insurance all danger as to miscalculations
relative to the uncertain future need of insurance or the fail-
ure to carry out original purposes is obviated. Such insur-
ance is certain in its results in that it provides protection that
is permanent, payable in the event of death, whether that
occur early or late, and purchasable at a definite and moder-
ate premium which remains uniform throughout life.

Furnishes Permanent Protection at the Smallest Initial
Outlay. As has been aptly stated " the ordinary life policy
is of all policies the one which gives the maximum of perma-
nent protection at a minimum annual charge." This may be
illustrated by comparing the gross premium charged by com-
panies for ordinary life policies with those required under the
limited payment and endowment plans. For instance, the
annual premium charged by a certain company per $1,000
of ordinary life insurance is $19 at age 25, $21.80 at age 30,
and $25.45 at age 35. On a twenty-payment life policy at
the same ages the annual premiums charged by this company
are $26.75, $29.70, and $33.28; while on an endowment pol-
icy, maturing in twenty years, the premiums are respectively
$44.82, $45.63, and $46.70. It is therefore seen that the or-
dinary life policy furnishes permanent protection at the small-
est initial outlay, although, as will be shown later, the limited-
payment and endowment policies will, if the insured continues
to live, ultimately yield certain advantages which probably
induced the insured to prefer these forms and which will
compensate for the higher premium. In case of early death,
however, the insured would realize the same amount under
each of the aforementioned policies, yet the outlay on the
part of the insured would have been considerably greater
under the limited-payment and endowment plans than under
the ordinary life policy.

Owing to its moderate annual cost, an ordinary life policy
tends to bring adequate protection within the reach of nearly
all. It is particularly well adapted to those whose income is
small and who find desirable a considerable amount of perma-
nent protection. To the rich man, on the other hand, the
policy affords ample protection and enables him to use any
surplus money to better advantage probably than if allowed
to accumulate with an insurance company. The policy is also
well adapted to persons who, although having passed middle
life, may still desire the largest amount of permanent pro-
tection at the lowest cost. Even at ages 45 and 50 the an-
nual premiums charged by the aforementioned company are,
respectively, only $36.50 and $45.10; while for a twenty-pay-
ment life policy at the same ages the premiums are $43.46
and $51.26, and for an endowment policy, maturing in twenty
years, $51.45 and $56.55.

Related posts:
Renewable and Convertible Features in Term Policies

Combination of Various Types of Policies

A large
number of the special contracts referred to in the preceding
classification represent in the aggregate only a limited percentage
of the total insurance written. Probably three-fourths of the
total life insurance in America, it has been
estimated, consists of three forms of policies, viz, whole-life
policies on the continuous premium plan, twenty-payment
whole-life policies, and twenty-year endowment insurance.

The remaining one-fourth of the outstanding insurance represents
a vast variety of policies, some differing from others
only in minor particulars. In this respect it should be noted
that many of the foregoing policy features easily lend themselves
to the effecting of an almost endless number of combinations.
Thus there may be issued a limited-payment whole-life
continuous-installment policy, or a limited-payment endowment
policy with the proceeds payable in ten or more
installments. As already indicated, all the various methods
of paying the premium, or of distributing the principal of
the contract, may be applied to any of the ordinary types of
policies written.
The Several Types of Policies Equivalent in Net Cost.
While policies differ greatly in form, it is important to note
that the net premium (the premium before any addition is
made for expenses or contingencies) for all, as will be shown
later, is computed on the basis of the same assumptions.
Thus a company in computing the net premiums for all its
types of policies may use the same mortality table, usually
the American Experience table, and the same assumed rate
of interest, usually 3 or 3y 2 per cent. If this is done, it follows
that all the policies issued by a given company are
equivalent to each other from the standpoint of dollars and
cents.

Some Policies Better Adapted than Others to Meet the
Special Needs of the Insured. Although the policies issued
by a given company are usually equivalent to one another in
net cost, it is highly important to remember that one form of
policy may be much better suited to the needs of the policy-holder
than another. Much has been written lately concerning
the " fitting of the policy to the client," by which is meant that
the various kinds' of policies have certain advantages or disadvantages,
depending upon the circumstances surrounding the
applicant and the particular purpose that he wishes to realize
by the taking out of life insurance. It is therefore highly important
for the salesman, after ascertaining the prospective applicant's
financial ability to pay premiums and the object
which it is desired to accomplish through insurance, to recommend
impartially that contract which will best serve his client.
The matter may be illustrated by the following example : A
merchant may display a large variety of suits of clothes all
valued at the same price. But, despite their common value,
these suits may differ in color, style, and material. One suit
may be totally unfit for the use of a prospective buyer, although
inherently worth just as much as another suit which may be
selected by him as meeting his requirements. In life insurance,
likewise, the many policies on the market may from a
mathematical standpoint be of equal value. But in selecting
a contract the prospective buyer should be careful to see, and
in such selection it is the professional duty of the agent to
render impartial advice, that the character of the policy is
such as to give him what the family or business circumstances
surrounding his life require.

Related posts:
Classification of Annuities

Classification of Annuities

The ordinary annuity con-
tract is an agreement whereby the company promises, in return
for a cash payment made in advance, to pay the annuitant
while living an agreed amount annually, semi-annually, or
quarterly, such payments to cease whenever death occurs.
The purchase of an annuity therefore represents the purchase
of a fixed income, and the general purpose of the contract is
seen to be the reverse of that accomplished under life insurance.

As was the case with life-insurance policies, annuities may
be of various kinds. The annuity may be one for the
whole of life (a life annuity) or merely for a stipulated term
(a term annuity). Sometimes it is provided that a stated
minimum number of annuity payments shall be made under
any circumstances, as, for example, that at least ten annual
payments are guaranteed although the annuitant may have
died before the expiration of that time. So-called " deferred
annuities " may also be granted for the purpose of enabling
the purchaser to provide an income for himself at some future
time, and the purchase price of such an annuity may take the
form of a single premium at the time of purchase, a level
premium during the entire time between the date of purchase
and the commencement of the annuity, or the payment of a
limited number of premiums under the limited premium payment
plan. Under the ordinary annuity, the first annuity is
usually payable three, six, or twelve months following the
date of purchase, whereas under the deferred annuity the payments
do not begin until the purchaser reaches a certain age,
such as twenty or thirty years following the age at purchase.
Should death occur during this twenty- or thirty-year period,
no refund of the premiums or purchase price is ordinarily
made; although it is entirely feasible under the deferred annuity
plan to provide that in case of death before the annuity
payments begin, the premiums which may have been paid shall
be refunded to the heirs of the purchaser. It should also be
stated that two persons, such as husband and wife, or two
sisters, may purchase an annuity payable to them jointly while
both live and also continuing during the lifetime of the survivor.
As has been well stated : " By this means an income
is provided so long as the survivor of the two can possibly
require it. The same principle may, of course, be extended
to three or more lives, but the circumstances are rare when
such annuities are desirable, while for two lives it is a common
form of contract."

Related posts:
Special Types of Contracts

Special Types of Contracts

A very large variety of special contracts,
differing materially from those already mentioned,
might be described; but special attention will be
directed to the following three main classes:

1. Return-premium policies. Such policies differ
from the usual forms of life insurance in that they promise
upon death to pay not only the face of the policy, but in addition
thereto a sum equal to all or to a portion of the premiums
paid. The premiums returned may comprise the entire
amount paid during the existence of the contract, but usually
such return is limited to the premiums paid during a limited
p'eriod, such as ten, fifteen, or twenty years. A promise of
this kind should cause no surprise since the policy merely
represents increasing life insurance under a level premium
plan. In other words, the face value of the policy increases
as the number of premium payments increases, but this increasing
amount of insurance must be paid for by an extra
charge, i.e. the premium on a policy allowing a return of all
or a portion of the premiums, is higher than the premium for
the same kind of policy when not containing a return premium
privilege. It may be added that pure-endowment contracts
sometimes provide for the return of premiums paid in
the event of death before the expiration of the pure-endowment
period.

2. Policies which involve more than one life. In
addition to the various types of continuous-installment policies,
which it will be remembered involve the lives of the insured
and one or more beneficiaries, there are three other
types of policies under this heading that deserve special mention.
One type goes under the name of " ordinary joint-life
insurance." Joint-life policies may be taken out on two or
more lives, and sometimes prove advantageous to several business
partners who may wish to utilize the same for the protection
of their partnership against the withdrawal of capital or
other financial embarrassment occasioned by the death of any
one of them. The policy promises the payment of the principal
in the event of the first death amongst the two or more
persons covered by the contract. This joint-life principle may
be applied to any of the ordinary forms of life insurance, such
as whole-life policies, limited-payment policies, term insurance,
endowment insurance, etc.

" Last-survivor " and " contingent " or " survivorship " insurance
should also be referred to briefly, although policies
of this kind are used to only a limited extent. The last-survivor
policy differs from the ordinary joint-life policy in
that the principal is payable in the event of the last death
instead of the first death. Contingent or survivorship policies,
on the other hand, "insure one life against another"
and provide for the payment of the face value in the event
of the death of a certain person, but only on the condition
that some other person designated in the policy is still alive.
In his discussion of these two forms of policies, Mr. Henry
Moir indicates their purpose in the following words :

Last-survivor policies are seldom, required, although sometimes
when two persons have an income which will be continued to
the survivor, and they desire to borrow money on
their joint interest, a policy of tbis nature may enable them
to effect their purpose on reasonable terms. . . . Contingent or
survivorship policies will be understood more readily if the
circumstances under which they are generally issued be explained.
It is common in the will of a wealthy man to provide
that tbe entire income from his property be paid to his widow,
and tbat the property be divided on her death amongst certain
heirs or legatees who may then be living. In such circumstances
it is evident that tbe share of the property would be
lost by any heir or legatee who might die during the lifetime
of the widow. The cheapest form of protecting tbis share from
absolute loss is the survivorship assurance, providing the sum
assured at bis death in event of its occurring in the lifetime
of tbe widow. Assurance companies occasionally grant loans
secured by contingent interests in estates to be divided at some
future time, called reversions, and any such loans should be
protected by a survivorship policy. 2

3. Policies containing total disability features.
Since a separate chapter is devoted to a discussion of total
disability benefits 3 in life insurance, it will suffice to indicate
here merely the nature of the special benefits offered. Without
special provision a life-insurance policy may not fully
protect where the holder becomes totally disabled and is not
in a position to keep his insurance alive by further premium
payments. Moreover, even granting that the policy can be
maintained, no part of the face value can be realized under the
contract until death actually occurs, although such payments
may be sadly needed at the time. Considerations like these
have induced a very large number of American companies to
assist the policyholder in various ways in the event of total
disability. Such assistance has usually taken one or more of
the following forms in the event of total disability : ( 1 ) the
premiums will cease and the policy will be considered fully
paid during the time of disability; (2) the policyholder may
select either this option or may choose to have the value of his
policy converted into an annuity, the first payment to begin at
once; and (3) the policy either matures for a stated sum or
becomes payable in ten or twenty annual installments, such
payment stopping whenever the disability ceases.

Related posts:
Two other types of insurance policies

Two other types of insurance policies

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.

Related posts:
Classification of policies. Part3

Classification of policies. Part3

Policies Classified According to the Method by Which
the Proceeds Are Paid. Reference is had under this heading to the
various types of so-called installment policies.
Instead of paying the face of the policy in one lump sum in
the event of death or maturity, the proceeds are paid in regular
installments, either annually, semi-annually, or monthly,
over a prescribed period of time, such as ten, fifteen, or twenty
years. This installment feature may be applied to the payment of
the proceeds of any of the usual types of policies.

Thus it may be arranged that under a $10,000 whole-life
policy the principal of $10,000 shall not be paid in full upon
death, but the company's liability shall be limited to the pay-
ment of $1,000 upon the happening of death and $1,000 each
year thereafter until the tenth or last installment has been
paid. In case the company's liability should be limited to
the payment of the $10,000 in the form of fifteen or twenty
installments, each installment would be, respectively, $666.66
and $500. Should the beneficiary die before all the install-
ments have been paid, provision is usually made that the
unpaid installments may be continued for the original amount
to the deceased beneficiary's estate or to a newly designated
beneficiary, or may be commuted and paid in one lump sum.

If the total installments aggregate the face value of the
policy, the cost of the contract will naturally be smaller than
if the face value of the policy be payable in full upon maturity of
the contract. It is apparent that by paying the
$10,000 in ten installments the company retains the use of
a large part of the policy's proceeds for a considerable period,
viz, $9,000 for one year, $8,000 for one year, $7,000 for one
year, etc. Mathematically, the company can arrange to give
the interest earnings (at an assumed rate) on these balances
to the insured during his lifetime in the form of a reduced
premium. Many companies, however, follow the plan of
charging the same premium that would be required on the
same kind of policy when providing for the payment of the
proceeds in one lump sum, and then make allowance for interest
earnings on the proceeds retained under the installment
plan by increasing the size of the installments.

While the ordinary installment policy, as just described,
affords the advantage of giving the beneficiary a definite income
for a prescribed number of years and thus prevents the
possible loss or dissipation of the proceeds of the policy as
might be the case if the entire sum were paid at once, it
should be remembered that these installments are limited in
number, and that upon the payment of the last installment
the beneficiary may still be in need of an income. This
shortcoming of the ordinary installment policy may be avoided
by arranging for the continuance of such payments throughout
the lifetime of the beneficiary. Such an arrangement
may be effected under the so-called " continuous-installment
policy." Here the company agrees to pay a definite number
of installments, irrespective of the death or survival of the
beneficiary, and to this extent the continuous-installment policy
includes the ordinary installment feature. But after the
entire face of the policy has been paid in installments the
qompany gives the further very important guarantee that it
will keep on paying these installments if the beneficiary be
still living and will continue to do so during the lifetime of
said beneficiary.

The continuous-installment feature lends itself to a large
variety of applications, and almost any set of circumstances
requiring a guaranteed income can be met by the contracts
of certain companies. The continuous income may be so
arranged as to be paid annually, semi-annually, or monthly,
as desired. Instead of guaranteeing an income throughout
the lifetime of merely one beneficiary, several beneficiaries
may be protected. Thus one beneficiary may be assured an income
throughout life, and following his or her death, another
designated beneficiary may become the recipient of the stipulated
income either during the whole of life or for a specified
number of years. Similarly, the continuous-installment plan
may be combined with the endowment principle. Thus if the
holder of an endowment policy should outlive the endowment
period an annual income may be promised to him throughout
life. Further arrangement may be made whereby, following
his death, an annual income may be paid to his wife or other
beneficiary or beneficiaries as long as they may live. Or, the
policy may be made to contain a guarantee to the holder of,
say, twenty definite annual payments with a further promise
that such installments will continue, following the payment
of the twentieth installment, during either the lifetime of the
insured or of the insured and another beneficiary.

Related posts:
Classification of policies. Part2

Classification of policies. Part2

Policies Classified According to the Inclusion or Exclusion
of a Pure-Endowment Feature. A pure endowment is
a contract which promises to pay to the holder thereof a stated
sum of money if he be living at the end of a specified period,
nothing being paid in case of prior death. Term insurance,
on the contrary, consists of a promise to pay a stated sum in
case of death during the given period, nothing being paid in
case of survival. The two promises are, therefore, exactly
opposite in their nature. They may, however, be combined in
the same contract, in which case the policy goes under the
name of "endowment insurance." Thus a $1,000 twenty-year
endowment policy may be regarded as a combination of
twenty-year term insurance for $1,000 and a twenty-year pure
endowment for an equal amount. In other words the policy
assures the holder that he will receive $1,000 whenever death
may occur during the twenty-year term ; likewise that he will
receive $1,000 in case he outlives the said twenty-year period.

In either case the policyholder receives $1,000, the payment
at death being provided for under the term insurance feature
of the endowment contract, and the payment upon survival
being provided for under the pure endowment.

The mathematical premium for endowment insurance represents the
sum of the premiums for the term insurance and
for the pure endowment. The premium paid at a given age
will be higher for short- than for long-term endowments because
the company must collect a sufficient amount of money so
that together with compound interest it will have the face value
of the policy at the end of the term. Such policies have become
very popular during the past twenty years, and now represent a
very considerable proportion of the total life insurance
written. They may cover any stipulated period, such as ten,
fifteen, twenty, thirty, and forty years. In Great Britain the
tendency has been towards the selection of the longer terms,
while in America the twenty-year period seems to have proved
the most popular, although various companies are now strongly
urging the long-term period with a view to having the policy,
by making it mature at such ages as 60 or 65, afford a convenient
combination of life-insurance protection with provision for old age.
Their contention is that a whole-life policy
is an endowment policy maturing at age 96, according to the
American Experience table, and that by the payment of a
slightly higher premium, or by leaving all dividend accumulations
with the company, the policy should be made to mature
at a more logical age, such as 60 or 65. Premiums are usually
paid on the level plan throughout the life of the contract.
Often, however, long-term endowments for periods like thirty
or thirty-five years are paid for on the -limited-payment plan,
the premiums, for example, being paid during the first ten or
fifteen years, although the face of the policy is not payable until,
say, twenty years after premium payments have ceased.

Many types of endowment policies are issued in addition to
the ordinary form which promises a stipulated amount in the
event of either death or survival. Thus there may be " double
endowments," in which case the pure endowment equals twice
the sum of the amount that will be paid in the form of term
insurance in case of death, or " semi-endowments," where the
pure endowment equals one-half the amount paid upon death.
.Various special types of so-called " child endowment policies "
are also issued. Sometimes these policies provide merely for
the return in full of all the premiums paid in the event of the
child's death, the face of the policy being paid only upon the
child surviving a fixed age. Policies of this character are not
life-insurance contracts in the true sense, but have for their
purpose the accumulation of a fund for business or educational
purposes upon the child attaining a specified age. In other
instances a smaller premium may be charged because only
the payment of a pure endowment is promised, there being no
return of the premiums in the event of the child's death during
the specified term. Again, it may be provided that upon the
death of the purchaser of a child's endowment policy, usually
the father or some other near relative, all premium payments
shall cease, the policy becoming full-paid and the principal
becoming due when the child reaches a specified age. It may
be added that until recently various companies also extended
the pure-endowment feature to the payment of dividends on
various types of contracts. This was done under the so-called
" tontine plan," whereby the dividends were paid only at the
end of a certain number of years, such as ten, fifteen, or twenty
years, provided the policyholder was living at that time, these
dividends, however, being forfeited in case of death before the
expiration of the indicated number of years.

Related posts:
Classification of policies

Classification of policies

Despite the numerous forms of life-insurance policies already
on the market, each year sees the various companies
announcing to the public new contracts containing some special
feature. Ignoring the numerous minor differences that
exist, life-insurance contracts may be classified briefly under
the following six leading groups. This chapter will merely
undertake to define and indicate the nature of the contracts
comprising each of these groups; the discussion of the special
uses and the relative advantages or disadvantages of the respective
policies being deferred to the next six chapters.

Policies Classified According to the Term Under this
heading contracts may be classified as " whole-" or " straightlife policies"
and " term policies," the first implying that the
policy continues during the whole of the insured's life and
that the face value is payable only at death, and the second
referring to a policy payable only if death occurs during a
stipulated period, such as five, ten, fifteen, or twenty years.
A whole-life policy may be defined as a " term policy for the
whole of life," while a term policy, as understood in life-insurance
terminology, is one written for a definite period of years.
It should be noted, however, that where the company is a
mutual one the dividend distributions on the whole-life policy
may be allowed to remain with the company with a view to
shortening the time of maturity of the contract. In other
words, the dividend accumulations, if left with the company,
may be used to terminate the policy for its face value at a
given date although death may not have occurred by that time.

Policies Classified According to the Method of Paying
Premiums. Life-insurance premiums are customarily paid
on the " annual level premium " plan, i.e. the premium collected
by the company each year remains the same during the
whole of life or during an agreed term of years. As contrasted
with this method there is the " natural premium "
plan, according to which the insurance is granted in the form
of renewable one-year-term insurance, the annual premium
increasing from year to year in accordance with the increase
in the cost of insurance brought about by the increased risk
attaching to increasing age. This plan is rarely used to-day
and, as will be explained in the chapter on the " Keserve," i
the success of modern life insurance is dependent upon the
charging of a uniform level premium.

Annual premiums on any policy may be discounted to their
present value, and this discounted amount paid in advance
in one lump sum, commonly called the " single premium."
Mathematically, the net single premium (i.e. the single premium
without any additions for expenses and contingencies)
is equivalent, taking into consideration the element of time
and an assumed rate of interest, to the net annual level premiums
paid- for the same policy. Annuities are commonly
paid for with a single premium in advance, but life-insurance
policies are rarely paid for by this method, the policyholder
finding the small annual premium much more convenient, and
also not wishing to risk the chance, in case of early death, of
losing the much larger sum paid to the company under the
single premium plan. It should also be stated that companies,
as regards the great majority of policies written, permit the
annual level premium to be paid semi-annually or quarterly,
while in the case of industrial insurance premium payments
are made weekly. While such frequent payments may prove
a convenience to the policyholder, the aggregate premium paid
is somewhat larger because of the loss of interest to the insurance
company as well as the greater collection expense.

Various other premium-payment plans are in use to-day.
Thus under the terms of the so-called " limited-payment policy."
an annual level premium is charged for a limited number
of years, such as ten, fifteen, or twenty years, and upon the
payment of the last premium the policy becomes " full paid."
This method of paying premiums may under certain circumstances
be applied advantageously to any type of life-insurance
contract, except very short term policies. The premium under
this plan is, of course, larger than the annual level premium
paid throughout the life of the policy. Thus in the case of a
limited payment whole-life policy, the ten, fifteen or twenty
premiums called for by the contract represent a total payment
sufficiently larger than the aggregate amount paid in during
the same period under the ordinary annual level premium
plan, so that at the end of the designated period the company
will have accumulated an amount which will be sufficient, together
with compound interest earnings at an assumed rate,
to carry the policy to maturity without requiring any further
payments from the policyholder.

Related posts:
The Use of Life Insurance as a Means of Borrowing Without Collateral

The Use of Life Insurance as a Means of Borrowing Without Collateral

Thus far it has been shown that life
insurance may be the means of strengthening and safeguarding
the credit of a business whose tangible collateral might
be adversely affected by the death of those who are the brains
and the life-blood of the concern. But life-insurance policies
may also be used for effecting loans by persons who possess no
tangible security whatever but who are trusted by the lenders
because of their well-known integrity. The usefulness
of life insurance in this important respect has been too little
appreciated. Thousands upon thousands of young men fritter away
the best years of their lives and fail to take advantage of the
finest opportunities simply because they are laboring under
the assumption that they are handicapped in doing
what they would like to do because they do not actually possess
the necessary capital.

The serviceability of life insurance in helping such young
men to realize their ambition may be illustrated by the fol-
lowing example: A young man desires to obtain a college
education, yet he himself does not possess the necessary means
nor can his parents, owing to their moderate circumstances,
assist him, much as they would like. His best interests require
that he should take the course of study as soon as possible
and pursue it consecutively and without interruption, but this
he feels he cannot do. Assuming that this young man is
determined to get the education, he will see that one of two
courses is open to him. He may first earn the necessary
money, but this course is likely to consume some of his best
years, and will defer the time of graduation and his entrance
into his chosen vocation. Or, he may, as the saying is, " earn
his way through college," but in doing this he is serving two
masters, to the detriment of himself. He is in college for
the express purpose of preparing himself for his lifework,
yet he must give much time and energy that should be devoted
to study, to the performance of work in which he has no other
interest than the earning of necessary funds. Clearly, it is
to the interest of this young man to borrow money, if that is
possible, so as to enable him to give all his time to the
mastery of his studies, and upon their completion, promptly
to begin his vocation with a view to repaying the loan as soon
as possible.
Xow, as is frequently the case, this young man has some
relative or friend who is interested in his welfare, and who
can be induced to advance the necessary amount at the cur-
rent rate of interest and without tangible collateral if only
assurances can be given that the loan will be repaid. Know-
ing the young man's reliability, the lender feels certain that
the loan with interest will be repaid in due course of time,
but he cannot afford to gamble with the contingency of
death, because he knows that should the borrower be removed
by an untimely death the loan would never be repaid. This
uncertain element in the transaction may be obviated in one
of two ways. Either the young man may insure his life for
an amount sufficient to cover the principal of the loan, any
premiums that the creditor might have to pay, and all antici-
pated interest charges, and then assign the policy to the cred-
itor; or, the creditor may, if he so desires, take out a policy
on the life of the debtor. Usually it is best for the debtor to
take out the insurance and protect the creditor with an assign-
ment.
Moreover, if the debtor finds it necessary he may arrange
to have the creditor pay the premiums and consider these
as a part of the loan. Now if the borrower completes hie
course and continues to live he will repay the loan with
interest and at that time the assigned policy will revert to
him and may then be used for family or business protection.
Should the borrower die, however, before he has had time to
repay all of the loan, the creditor will retain out of the in-
surance proceeds the amount still owing and refund the bal-
ance to the person or persons designated as beneficiaries by
the insured.

Numerous other illustrations may be mentioned to show the
value of life insurance as a means of making possible borrow-
ing without collateral. It may serve as a means of enabling
a young man to obtain the initial supply of capital to start
in business. It may enhance the value of an indorsement or
any other obligation when the indorser or debtor is not the
possessor of marketable collateral. It may also advantage-
ously be used in that large number of instances where a
man already established in business may need more credit for
its proper development but where the banker feels that the
business, standing by itself, does not warrant the making of a
new loan. To the banker the man at the head of the business
is a very important asset, and he may feel that while the
business itself does not warrant another loan, the business
plus the man who manages it would justify the extension of
further credit. Here, however, just as in the previous illus-
tration, the contingency of early death must be provided
against, since in that event the last loans are apt to be unse-
cured. In other words a life-insurance policy in favor of the
creditor is a hedge against the contingency of the loss of the
value of the human life upon which the repayment of the loan
is primarily dependent.


Related posts:
The Use of Life Insurance as a Means of Enhancing the Credit of Business Enterprises During Times of Financial Stringency.

The Use of Life Insurance as a Means of Enhancing the Credit of Business Enterprises During Times of Financial Stringency.

Just as endowment insurance proves serviceable
as a means of accumulating a substantial fund without the
insured being conscious of any sacrifice, so nearly all other
forms of life-insurance policies, as will be explained more
fully later, contain a savings feature, although in none does
that feature appear so prominently as in the ordinary types
of endowment policies. Nearly all policies are paid for by
an annual premium which is uniform throughout life or the
premium-paying period, with the result that the company
gradually accumulates through overcharges in the early years,
when the premium is more than sufficient to meet the current
cost of insurance, a fund which when improved at interest
at an assumed rate will just enable the company to meet
its claims as they mature. On a whole-life policy, for exam-
ple, this fund reaches large proportions in the course of years. 4
It follows, therefore, that the taking out of life-insurance
policies from time to time, made payable to either the in-
sured's estate or to his business, means the gradual accumu-
lation of increasing cash or loan values which are obtainable
at any time by surrendering the policy or by borrowing against
its cash value.

It is not intended here to encourage the altogether too
common habit of borrowing the loan value of policies, because
in many instances the privilege is exercised unnecessarily,
simply because some luxury is desired or because the security
market seems low, or because some other apparent opportu-
nity to make money quickly seems to present itself. And,
even where these considerations are not the motive, the insured
frequently uses this asset because it is so easily obtained,
never considering at the time the relation of that asset to his
beneficiary and often overlooking some other available asset
which should have been used in preference to the cash value
of his policy. Borrowing under such conditions is not con-
templated in this discussion. "What it is intended to show is
that the surrender or loan value of a policy is a real asset
which enhances the credit of the business man because it is
available on demand, irrespective of the financial conditions
which may prevail, and usually at the fixed rate of 5 or 6
per cent.
Bankers and other creditors always regard the cash value
of a business man's policies as an additional asset justifying
larger extension of credit on his firm's paper. But sup-
pose the borrower must have additional credit at a time when
the condition of the money market is such as to make it
highly inconvenient or impossible for the banks to meet his
requirements. It is at such times that the loan privilege
contained in insurance contracts affords a convenient and
most excellent means of relief, as has been amply testified to
by many of the nation's leading business men. During the
panic of 1907, for example, when such stringency prevailed
in the credit market as to make impossible the floating of
loans even on the best collateral, millions of dollars were bor-
rowed on life-insurance policies and numerous business men,
firms and corporations used their life-insurance contracts
as a means of securing funds to make up their payrolls or to
meet other pressing obligations. This service of life insur-
ance to the business community and the spirit in which it
should be used is well exemplified by the experience of one
of the nation's leading business men.
Never, except as a last resource, should a man use his insur-
ance policies as the basis for borrowing. It should be a source
of joy and satisfaction that this sacred investment is kept clear
of encumbrance. Whatever advantageous financial operations
may offer with reference to other investments, sums set aside
for insurance should be regarded as of a different class, to be
maintained unimpaired. It is a satisfaction to know that the
gradually increasing cash value offers, however, a resource al-
ways available and unquestionable. It is a stout anchor to
windward holding firm against any storm of family or business
misfortune that may arise. In the autumn of 1907, there was
a panic, during which there was a practical suspension both
of currency payments and of credits. Rates of interest ad-
vanced to prohibitory figures, but notwithstanding the enhanced
rates, loans were practically impossible to obtain. Three or
four years before, one of my partners and I had taken out
life-insurance policies for considerable amounts. These gave
the right to borrow from the insurance company at the fixed
rate of 5 per cent. We were, therefore, enabled to place this
credit at the disposal of the partnership of which we were
members, and about $120,000 of cash was instantly available in
a time of great need. Of course, these loans were repaid to
the insurance company immediately upon the restoration of
normal conditions. Such a privilege must in many cases mean
the avoidance of actual disaster.
Related posts:

Life Insurance as Security for Bond Issues

Life Insurance as Security for Bond Issues

Life insurance may also conveniently be used as a hedge against the
possible failure to pay a bond issue at maturity. Thus,
let us assume that a firm wishes to raise $50,000 on bonds
which will mature in twenty years, and that the nature and
9rganization of the business are such as to make it chiefly
dependent for its credit and successful operation upon the
life of one man. Under such circumstances the unexpected
death of this individual might ruin the company to such an
extent that the liquidation of its assets might not prove sufficient
for the full redemption of the bonds. Unless some
means can be found which will assure the creditors that the
bonds will be redeemed upon maturity, the loan will in all
probability not be effected at all or only under severe restrictions
and at a very high rate of interest.
Proper security to the creditors may conveniently be furnished
in this instance through the medium of endowment
insurance. In other words, the head of the business may
insure his life for $50,000 under a twenty-year endowment
policy. In case of survival, the business is likely to prosper
with the result that the security back of the bonds will greatly
increase. In that case the endowment policy will serve the
purpose of creating a sinking fund which increases year after
year until at the end of twenty years it will amount to $50,000
or just the sum needed to redeem the bond issue then
falling due. On the other hand, should the insured die before
the expiration of the twenty-year period, and this is the
real contingency that the creditors desire to be protected
against, the business at once receives the full face value of
the policy. The firm would thus have on hand sufficient funds
to pay off the bonds at once if that were possible and desirable.
But if it is found, instead, that the business can be
continued advantageously, such a portion of the $50,000 of
insurance money may be set aside in a sinking fund as will
at the current rate of interest amount to $50,000, or the face
of the bond issue, at the end of the twenty-year period. The
balance of tbre insurance money not needed for the sinking
fund may be used for the improvement of the business, thus
in turn still more enhancing the security back of the bond
issue.

Similar in nature to the above function is the further use
of life insurance as a means of accumulating a sinking fund
for the benefit of such institutions as schools, colleges,
churches and hospitals. Many times such institutions are
largely dependent upon the efforts and generosity of one man
or a limited number of men. While he or they live the institution
prospers, but in the event of unexpected death, the
absence of ample endowment funds compels retrenchment
and consequently impairment of usefulness. Such a contingency
the supporters of the institution may obviate by taking out
endowment insurance in its behalf. In case of death
the institution receives at once the face of the policy, while
in the event of survival the policy will enable the insured
gradually to accumulate a sinking fund to be turned over to
the institution in question at the expiration of the term.
During the last few years the graduating classes of a number
of leading universities and colleges have also adopted this
method, and it is mentioned here merely as illustrative of
the numerous ways in which the principle may be applied, as
a convenient method of raising a substantial class fund for
their Alma Mater. The plan adopted consists in each member of
the class pledging himself to take and maintain, say, a
$250 or $500 twenty-year endowment policy, the university
or college being named the beneficiary. In this way one hundred
graduates by setting aside the small sum of only about
3^ or Gy 2 cents a day can during the twenty-year period,
using as a basis the present experience of the average American
company, accumulate approximately $25,000 or $50,000
as a class fund. Ask these one hundred persons twenty years
from date to give that sum, and the refusal will be general.
Through the use of the endowment-insurance plan, however,
this substantial result can be obtained at a sacrifice so small
as to be hardly worth mentioning. It is practically certain
that the sum involved, owing to its smallness, would, in the
absence of this plan, have been wasted in daily expenditures
for trifles, and the large sum that may be secured through
endowment insurance may therefore be regarded as the utilization
of a by-product odds and ends that would not other-
wise have been saved for a noble purpose.


Related posts:
The Insurance of Employees for the Benefit of Their Families

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.
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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."


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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.

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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.

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Facilitates the Purchase of a Home