The morning call. [volume] (San Francisco [Calif.]) 1878-1895, 1891-12-04
INSURANCE.
Legitimate Mutual Life Insurance
INVESTMENT OR TOaTINE VARIETY,
AND THE.

IL aoO tue pOlicy VI GULF
pany are its only members They dispense with
tn services and save the cost OF stock capital;
they, as corporate body, control the business
themselves take all the risks themselves, save
all the profits for themselves, and so do the
business for the whole number at its exact cost
ana do II for each member at his proportionate
share of the total cost Each is to pay the full,
exact cost OF his individual risk and for that OF
no one else; each is to have his risk carried at
Its dyldual cost, e., Its individual proportion
OF the total cost.
NO one me mber is to make profit out OF any
other; because, capital stock being dispensed
with, each mans premium is calculated upon
assumptions and '1oaded" with a margin which
serves the protective purpose OF capital stock as
to his own policy; and the aggregate Of the mar.
gins OF all the members protects the business as
whole.
Each member furnishes his share OF the pro-
lection to the whole; therefore no one is entitled
TO any profit out OF any others payment.
Lie Insurance Is simply the payment OF death
losses. The payment of tn ose losses as they
occur, the provision OF reserves for those to oc-
cur, the expenses OF management and taxes
make up the total cost Of the business.
Risks differ, as ages, amounts and plans differ; ;
but the premiums differ accordingly, so that each
mans burden OF premium is duly proportloned
10 The burden OF risk he imposes on the rest.
Ihls premium each man agrees TO pay.
NOTE carefully this: Each mans premium is
calculated as his entire and proper share OF the
Whoie possible cost of all the insurance the COM
pany Is carrying. In calculating 1t the company
assumes that it VIII have certain maximum
yearly death rate increasing with age in a GER
tain scale certain maximum rate OF expense
ana VIII earn certain minimum rate OF interest
on It's reserves. III each of these assumptions is
Just realized then each mans full premium Is
needed and is his exact proportion Of the whole
cost.
But if the losses are less, or the expenses are
less, or The interest earned Is more than was as
sumed, then The whole cost Is less, and each
mans share OF 1t is correspondingy less. How
is the reduced cost OF the whole business to be
adjusted among the members? Obviously, it
can be done only by reducing each mans premI-
um proportonately.
II the business as whole has cost in any year
less than was assumed In calculating the prenl.
ums, then the premiums were, for that year, so
much TOO high; each man has oyerpaid. Mutual
iy demands the return TO each OF his own over
ing relatively as If the whole business had cost
the whole OF the premiums.
If each receives back his own overpayment,
then each Will have paid the company for the
year just what his risk has cost The company for
the year, and Will have paid in just the same
proportion as II there had been no savings from
osses, expenses or interest-no overpayments-
and as II it had required all the premiums and
all the interest TO meet lUsses and expenses and
provide the reserve.
But II these savings or oyerpayments are dis
trlbuted in any other proportion, then some by
getting back more and others by getting less
than their own overpayment are made to pay
less or more than their share OF the yearly whole
cost, and 10 pay in different proportion than if
the cost had taken all the premiums and interest
to meet II, leaving no surplus.
obviously, ones propOrtionate share OF the
whole cost of years insurance ought not to be
greater when there is a saving than when there
Is none.
These considerations would seem to settle con-
clusiyeIy the methods by which dividends OF sur.
Plus or returns of oyerpayments should be made,
either for mutually or fairness.
WHEN SHOULD THEY BE MADE?
Since the return of surplus simply adjusts the
assumed cost and the actual cost OF insurance,
and is, In effect, merely a return Of oyerpay.
menIs, IL should be made as often as tie actual
cost Is Observation-Disclosures the overpa ymenr
Is Determined. The premiums are paid in and
interest is earned and collected year by year:
'be losses and expenses are paid aud the reserve
provided year by year, each years Income
and outgo are balanced by themselves The
cost OF insurance is determined aud met In and
Tor each year by Itself. The savings, surplus or
oyerpayments are determined in and for each
Year by Itself. There is no reason why the sur.
plus should not be returned each year, or such
portion OF 1t as prudence will allow; no reason
why such portion as my be safely divided
should be retained fox any period of years
Especially Is this true OF any company with a
considerable business and an experience su fl
Client TO establish The safety of its assumptions
as 10 mortality and interest, and which does not
expect 10 spend for expenses more than Its fu-
ture premiums will provide.
The whole substance Of mutual life Insurance
method Is that each man shall get his insurance
at its yearly cost 10 the company.
The natur al course OF business, therefore In n
mutual lie insurance company would be to
charge premium certain 10 be large enough for
all CONTINGENCIES; 10 select its risks carefully So
as 10 Keep well within the assumed MORTALITY.
10 invest It's reserves as probably as is consi silent
with perfect safety; to keep its expenses as low
as possiblei IN all these ways trying 10 make
the yearly cost as small as possible on the bust
ness as whole, and then each year dividing the
surplus o. overpayments to those who contrib
uted them in the proportion OF contribution or
oVerpayment, so 9tyiHg TO each policy. holder
his Insurance at just what it has cost the COM
pany TO carry him for the year, neither making
MIN pay more than that cost by giving him
less that his proportion OF the division aud Civ
ing the rest TO some favored person or class. nor
allowing him to pay less than that cost by giving
lie
from some other policy-hoder or class Thus
the company receives from each policy. holder
-ai II mas cost TO carry him. aud thus each policy
hoder pays yearly no more than IL costs TO carry
him-a perfectly balanced transaction.
IMPORTANCE OF NoN-FoRFE1rURE.
And mutually produces another most Impor-
tant practical result. No man knows how long
he may be able to carry all the Insurance protec.
ton his family needs. They are pretty certain
always TO need il. Financial reverses or Ill
health and the loss OF power to earn money may
at any time come 10 prevent his Carrying his in
surance further. Aud the less able he becomes
to pay the more does bis family need all the in.
surance they can possible gel; and all they can
then get is all too little.
III, now, he Is insured in a company which
truly and thoroughly fulhlls the promise of
mutually when he Is unable, or no longer needs
TO carry his policy, the company will no longer
need for that purpose what he had been from
year TO year contributing 10 The reserve, and his
share OF or contribution TO the reserve will then
be used as single premium for paid-up policy
for such amount as it ought to buy with full re-
gard to the principles of mutually
Then. In any case, whether he goes on or
stops, and whether he stops from choice or ne
cessity, he Will receive in some form OF policy
all the insurance he has paid for and the com
pany will receive its full pay for all the Insurance
1t gives.
That briefly but completely describes legit-
mate life insurance on the mutual plan admins
tered exactly according to the several elements
entering into the transaction and fully satisfying
each one OF them. And by Legitimate lie In
surance" we mean life insurance regarded as 4
service TO the community - life Insurance for
family protection which is the only service IL can
render, just as fire Insurance can serve only for
property protection. Life insurance protects the
family or an estate from the loss of the money
value OF its head, or creditor from the loss OF
the life OF bis debtor. and fire insurance protects
an owner against the lnss Of the Dnonav vol,a 80