The central Presbyterian. [volume] (Richmond, Va.) 1856-1908, 1869-03-24
For THE CENTRAL PRESBYTERIAN.
What is Life Assurance?

| DIS ndFluR sOulcJuiuS VI wv h"NN'S ~ oN''7 ,
or at least, as implying an unbecoming dlsrust Id
Providence. In fact, variety OF vague and erro-
neous notions prevail to greater or less extent,
on the subject. What then is life assurance? Is
it some reconcile scheme for defrauding the pcovl-
dence of God of the punctual payment OF oor
debt to the grave and the judsweqt2. j it an I'M
lawful casting of the dice into the lap OF chance
Is it some magic mode of changing penury into
wealth? Is it, in fact, mystery at all? We will
endeavor so to set forth the principles involved
and the modes of proceeding as to enable every
one to Judge for himself
The fundamental fact in the whole case is that,
whilst individual life is proverbially uncertain,
the average rates of mortality, when large mum
Der of persons is taken into the account. is precise
and unvarying, and easily ascertained. 1t IS gov
erned by law as fixed and uniform as that which
determines the recurrence of the seasons. LII, for
example, we take 10000 persons, at 30 years OF
age, it is found by long and careful observation,
that the sum of their ages at death will amount to
653 900 years, showing that, on an average, each
person now 30 years old will reach the 65.3 years,
and will therefore, yet live something more than
| 90 years. luC vi o'SioSS "PPiiS'
to any and all other ages WELL In the case here
given the Sc years of average after-life Is called
the expectation ofGte that is, the number Of years
which, at that age, one may expect probably to
live. Some will live longer, but others will die
prematurely Out of the 10000 supposed, some
IS will die the first year. But upon the whole,
the average is maintained. 1t has further been
found that the number of deaths which will occur
among the 10000, in each successive year, is gov
erned by like determiuate law SO that year after
year, the number Of deaths to occur may be calcu'
lated approximately, by anticipation.
These data afford all the necessary elements for
calculating life assurance. Let us suppose that a
capitalist should undertake. for sufficient consid
ertiop, to pay $1,000 to the heirs of each decen.
dent of these 10000 persons, amounting to Sl0,-
900, 900 in all. Knowing the average life Of all,
and the annual rate of mortality, it would be a
matter of no great difficulty for him to calculate
the annual sum which each must contribute, in
order to create a common fund.- which increased
by legal interest, would enable him to pay to the
heirs of each his 81 200, as it became due, by his
death. The annual sum thus paid by each to the
common fund, is what is called his premium, and
the contract for 81 000 which his heirs are to re-
ceive is the policy Essentially, these facts con-
stitute the whole mystery of life assurance. On
their basis tables have been formed, by the most
careful calculations, directed by the accumulated
results of statistical science, and two hundred
years experience. These tables cover the expecta
ton of life of all ages and the rates of assurance
of lives on every conceivable variety of plans, and
for every sum. from 500 to $4,000. In practical
use, these tables, if closely followed, would lead
to serious embarrassment and disaster, because
very few institutions, if any, have sufficient mum
Der of persons assured to secure them an absolute
realization of the averages which are based upon
the experience of large masses of population In
so small number as are found on the lists Of any
Assurance society, there are likely to occur occa.
sonal alterations FROM the standard rates of NOR
tally, by reason of pestilence war, and other
causes, temporarily increasing the death rates. II
the plans Of the companies made no provision for
such alterations, their occurrence would inevitably
bring with them ruin. What is called loading
is therefore added to the theoretical rates of from
twenty-five to forty per cent. of increase in the
premiums to serve a margin for contingencies.
The premiums, therefore, charged by all compa-
MES which are wisely aud safely managed, are con-
siderably more than the sum which is theoretically
necessary 10 secure the object proposed For, al
though the assured are liable to an excessive NOR.
tally some years. this in the long run, is compen.
stated by the number of deaths in other years fall
ing below the standard rates. Two other causes
combine to increase the surplus thus created. The
Carlisle tables of mortality which are generally
issued as standards of calculation, were derived
from mixed population in which the death rates
were much greater than in the selected persons
whom the companies ASSURE and the rate of NOR.
tally even among the population at large has been
somewhat diminished since those tables we're COM
piled, by the growth of medical skill, and of know
ledge of the principles of hygiene.
the results, therefore, of these combined causes
is the accumulation by the companies of surplus
more than is necessary to meet the policy claims
as they fall DUE The disposition to be made of
this surplus lies at the basis of the difference be.
tween proprietary or stock companies, and mutual
societies. and between cash and note companies.
j A proprietary or stock company is one in which
number of persons engage as a corporation in
the business of life assurance, based upon an in
vestment of capital made by the corporators, as
guarantee fund to the assured. In such COM
pany the entire surplus. arising from premiums,
is viewed as the profits of the business and as
such, it is either distributed by the corporators
among themselves, or divided between them and
the assured Among the proprietary companies,
some are absolutely unrestricted on this subject
being left free, if they see fit to appropriate to
themselves the entire surplus, beyond what is ne
cessary to meet the faces Of tile policies issued
In others, they are restricted to greater or less
amount of dividends in addition to legal interest
on the capital invested. The shares of the surplus
thus distributed whether to the proprietors or the
assured, are the Dividends.
A mutual assurance society is one in which the
business is managed wholly for the benefit of the
assured, the policy hoders,-to whom the entire
surplus is stately distributed, in dividends, addi-
tiona to the sums assured in their policies respec
lively. In some of these companies there is
small capital provided for, as guarantee to the
assured in the first beginning of business but this
capital is entitled to nothing more than legal in
terest, and the accumulatpg assets arising from
the premiums and interest on investments are the
guarantee fund to the assured.
These explanations, which will be continued in
our next not only bear upon the special end had
in view in these articles, but designed for the
information of the mass OF our people 10 whom
the whole subject is new, and growing daily more
important. SAMUEL j. BAIRD.