The New York herald. [volume] (New York [N.Y.]) 1840-1920, 1871-04-05
Dividends by Insurance Co,npu mics.

democratic maJoritics were buried.
Dividends by Insurance Coinpu mics.
There is, in connection with life insurance. a
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 inducefnent to in
sure With them. This custom has Of late years
obtained to such an extent that the very ex-
istence Of several Of the smaller Institutions
has been absolutely imperilled by it, and it has
formed q part of that gross mismanagement
which has led to disastrous results Moreover
it has tended to create wrong impression as
to the real purposes Of life insurance.
The April number of the Protector alludes
to the subject in these terms 1T ought to
be more generally understood that insurance
companies were organized for the express pur-
pose only of equalizing life, or, in other
words, to take advantage of a natural law,
which enables them to estimate with accuracy
the average duration Of life OF large number
Ofpsrsons, and thus give single life the benefit
of this calculation. BY way Of illustration
1t is stated that mans expectancy 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 ex-
pectancy, will come to the amount for which
he wishes to insure. With view Of meeting
such contingencies as may possibly arise from
increased mortality or from unforeseen causes,
q small addition is made to this annual pay
ment. This is briefly the principle upon
which life insurance works. This paramount
object being attained, 1t happens, however,
says the Protector, that the estimate for con-
hngences exceeds, in well managed compa-
niles, the necessities of the case. This arises
In part from the fact that the rate of interest
sbtainable 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
large fund denominated surplus thus fire.
quently accumulates, which in mutual compa-
MES is intended for distribution among their
policy holders. -,
IL Will easily be understood that ii takes
some time to realize the enormous accumu-
latiye power of compound interest-an i'm
portant part Of the foundation upon which the
system of life insurance rests 1t must, there
fore, be manifest to every policy holder that 1t
is for his advantage to allow his dividends to
collect for some years before touching them,
as the compound interest alone gives CON-
pany much additional power to make returns
The dividends will thus become proportion
ably larger. The period selected by English
Offices to declare ''bonns," as it is called in
England, is usually after The payment of the
fifth annual premium, and it has been found to
work more satisfactorily, both to the assurer
and to the assured, than an earlier dividend.
Such is o brief statement Of the real facts
surrounding the question !. and we believe that
those life insurance companies which will
abandon the system Of declaring il(-judged
dividends for the sake OF popularity will also,
In the long run, commend themselves most to
the favorable opirion Of the public as being
the more thoroughly conservative, aud hence
entitled to the greater confidence.