Edgefield advertiser. [volume] (Edgefield, S.C.) 1836-current, 1871-05-18
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Insurance is attracting the attention Of
the people generally, it is very important
that sall should come tc clear under
standing. .sof the:subject,; so that we can.
moro fIllyfappreciate its value; and the
writer hopes to make it clear, ION some Of
it's points2at least so that no one need
misanderstand. Hhat there is.a 1nisap-
preherision pretty generally onthe subject
of dividends, &c. lis clear tony mind, for
not many days since the writer was in
conversation with somegentlemcn on the
subject of Life Insurance, (and they were
well informed on other subjects general
ly, and said they had examined well the
subject of Life Insurance too,) who were
Of the impression that the Al per cent,
called a reserve premium, upon which
Company is based, was the sum which q
Company would pay to its policy-hold-
ers. Thus you perceive, that if persons,
well informed on various subjects, and
who too had studied life insurance, could
be so much mistaken as will be seen,
then it will not seem strange that the
people generally, who have not had an
opportunity andthe means of examining
the subject, should be incapable of think
ing, and coming to a correct conclusion.
for themselves. And hence the liability
of being led astray by competing agents.
The premium reserve of Al per cent. is
the amount necessary for the Company
to have ON hand to meet the future risk
it is that sum for which the policy to
which,it belongs could be transferred to,
and re-assured by another Company, and
is not an item of dividend. -. .a
/ Having made. these remarks, we are
led naturally to an examination of what
are dividends. Life insurance premiums
are made up of three parts. First, The
net cost of insurance for the current year;
Second, The premium reserve, or amount
necessary to have on hand invested, at
the close of the year, to meet the future
increase of risk; And Third, A margin
or gross sum added to the net premium
to defray the necessary expenses, and
cover any extraordinary losses conse-
quent upon epidemics, &C., and provide
for any deficiency caused by receivinga a
lower rate of interest than that assumed,
which may be Al per cent.
Taking the above data then, we can
verywell perceive how, that if the deaths
are equal to the rate assumed-the intei
rest realized is equal to the rate assumed
the loading or margin on the net premi-
um is sufficient only to cover expenses
the Company is perfectly solvent, and
can pay everyloss, but there will certain
ly be no surplus or dividend; but, on
the other hand, if the Company finds its
deaths less than the rate assumed, the
interest more than that assumed, the
loading or gross margin upon the net
premium in excess of current expenses,
(which is actually the case in American.
experience,) there will be surplus,
called dividend by life Companies,
and it will not do to lower the rates Of
life insurance, and put the chances in a
balance, for the balance would in many
instances preponderate to the entire des-
truction of the Company, and consequent
loss to many. Well, then these dividends
or profits to policy-holder are constant,
and will be moro or less yearly, accord
ing to the success of the Company, or its
management, and are uniform through a
series of years. But in addition to the
probable source of profit above alluded
to, this dividend must be powerfully in
creased by the operation of compound
interest, which the policy holder is enti-
tied to, and will receive, and which will
reach by the sixteenth OF eighteenth year
to 100 per cent, making the policy abso-
lutely self-sustaining: This is true, and
seems clear to my mind, and will be to
any one of ordinary capacity who will
examine carefully.
There arc many Companies now which
are giving to their older policy-holders
100 and even 12O per cent, which policies
are consequently self-sustaining, and
paying handsome profits without dollar
from the pocket of the policy holder. 1t
is only necessary to examine. Northern
life insurance journals to be convinced
of the facts here stated. Would A. IT.
Stewart purchase one million dollars
worth of these self-sustaining policies if
there was nothing valuable in them?
Mr.. w. L. Harvey, one Of the most ac-
complished actuaries Of this or any other
country, is now guiding alife insurance
Company (N1issouri MutuaD which guar
antees per cent. interest upon all cash
premiums paid in. It substitutes. IN ah-
solute guarantee of per centum per an
mum for the ordinary dividend, and the
Editor of the Insurance Times says that
call Companies may also do the same
thing" with safety.
In our next we will examine the yari-
Gus plans of life insurance as managed
by mutual Companies, and hope to de
velop facts of much importance to all
concerned in life insurance.
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