The evening telegraph. [volume] (Philadelphia [Pa.]) 1864-1918, 1871-04-06
DIVIDENDS BY INSURANCE COMPA-
MES.
From the N. Y. Herald.

From the NJ y. Herald
There is, in connection with life insurance,
q question which deeply concerns the public.
We allude to the practice followed by many
of our companies of announcing large annual
dividends apparently as an inducement to
insure with them. This custom has of late
years obtained to such an extent that the
very existence of several of the smaller insti-
tutions has been absolutely imperilled by it,
and 1t has formed part of that gross mis-
management which has led to disastrous re-
suits. Moreover it has tended to create a
wrong impression as to the real purposes of
life insurance.
The April number of the Protector alludes
to the subject in these terms: :-''It ought to
be more generally understood that insurance
companies were organized for the express
purpose only of equalizing life, or, in other
words, to take advantage of O natural law,
which enables them to estimate with accu
racy the average duration of life of large
number of persons, and thus give single
life the benefit of this calculation. By way
of illustration it is stated that mans expect
ancy of life is of course the number of years
which the average at his age will attain. To
assure his life, therefore, a sum must be
charged to him annually which, computed
with four per cent. compound interest for the
years of his expectancy, will
come to the amount for which he
wishes to insure. With a view of meeting such
contingencies as may possibly arise from
increased mortality or from unforeseen
causes, small addition is made to this annual
payment. This is briefly the principle upon
which life insurance works. This paramount
object being attained, it happens, however,
says the Protector, that the estimate for con-
tingepcies exceeds, in wellmanaged compa-
MES, the necessities of the case. This arises
in part from the fact that the rate of interest
obtainable on Investments is larger than what
was taken into the calculation, and from there
being certain other sources of profit to COM
pany from lapsed and surrendered policies; q
large fund denominated surplus thus fire.
quently accumulates, which in mutual COM
panies is intended for distribution among
their policy holders.
1t will easily be understood that it takes
some time to realize the enormous accumula-
tive power of compound interest-an impor-
tant part of the foundation upon which the
system of life insurance rests. 1t must, there
fore, be manifest to every policy-holder that
it is for his advantage to allow his dividends
to collect for some years before touching
them, as the compound interest alone gives a
company much additional power to make re-
turns The dividends will thus become pro.
portionably larger. The period selected by
English offices to declare 'bonus," as it is
called in England, is usually after the pay
ment Of the fifth annual premium, and it has
been found to work more satisfactorily, boSu
to the assurer and to the assured, than an
earlier dividend.
Such is a brief statement of the real facts
surrounding the question; and we believe
that those life insurance companies which
will abandon the system of declaring ill
judged dividends for the sake of popularity
will also, in the long run, commend them
selves most to the favorable opinion of tht
public as being the more thoroughly con
servative, and hence entitled to the create
| confidence.