The Indianapolis journal. [volume] (Indianapolis [Ind.]) 1867-1904, 1891-11-27
LEGITIMATE MUTUAL LIFE
INSURANCE
THE
Investment or Tontine Variety.

Mutuality means equality of burden and
of benefit: the same cost TO each man for
the same thing; there IS no favored class.
1t also means that the policy-holders of q
company are its only members. They dis
pense with the services and save the cost of
q stock capital; they, as o coporate 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, and do
IL 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 individual cost. ]. e., its
individual proportion of the total cost.
No one member is to mako a profit out OF
any other; because, capital stock being dis
pensed with, each mans premium Is calcu-
lated upon assumptions, and LOADED" with
q margin which serve the protective pur-
pose of capital stock as to his own policy:
and the aggregate of the margins of all the
members protects the business as a whole.
Each member furnishes his share of the
protection to the whole; therefore. no one
is entitled to any profit out of any others
payment.
1tAO 10 OAIlRAI "A kay bShtO l.
death losses. The pay of those losses
as they occur, the provision of reserves for
those TO occur, the expenses of manage
ment. 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 proportional to the burden of risk he
imposes on the rest. This premium each
man agrees to pay.
Note carefully this: Each mans prem
fun is calculated as his entire and proper
share of the whole possible cost of all the
insurance the company is carrying. In cal-
c~ulating it the company assumes that IL
will nave O certain maximum yearly death
rate. increasing with age in a certain scale,
D certain maximum rate OF expense. and
will earn u certain minimum rate Of inter-
est on its reserves. If each of these assump-
lions Is just realized then each mans full
premium is needed and is his exact proper
ton of the whole cost.
But il the losses are less, or the expenses
are less. OF the interest earned is more than
was ssumed, then the whole cost is less
and each mans share Of it is correspond
ingly less. low is the reduced cost of the
whole business to be adjusted among the
membersl Obviously 1t can be dono only
by reducing each mans premium proper
~tionately.
If the business as o whole has cost in any
year less than was assumed in calcu-
lating tho premiums, then the premiums
were. for that year. 30 much too nigh; each
man has overpaid. Mutuality demands the
return To each of his own oyerpayment.
Then all will stand on the same footing
relatively as if the whole business had cost
the whole of the premiums.
If each receives back his WI overpay-
ment. then each will ha, Q paid the company
tor the year Just what his risk has cost tho
company for the year, and will rave paid
In just the same proportion as if there had
been no savings from losses, expenses or
interest-no overpayments-and as if it
had required all the premiums and all the
interest to meet losses and expenses and
provide the reserve.
But if these savings or overpayments are
distributed in any other proportion, then
some, by getting back more aud others by
getting less than their own overpayment.
are made to pay less or morethan their share
of the yearly whole cost. and to pay in O
different proportion than If the cost had
taken all the premiums and interest to
meet 1t. leaving no surplus.
Obviously, one's proportionate share of
the whole cost of O years insurance ought
not to be greater when there lie q saving
than when there is none.
these considerations would seem to set
tie conclusively the methods by which div
idends of surplus or returns of overpay-
ments should be made. either for mutuality
or fairness.
WHEN SHOULD THEY BE MADEi
Since the return of surplus simply ad-
iusts the assumed cost and the actual cost
of insurance, and is. in effect, merely q re-
turn of o~verpayments, 1t should be made
rs often as the actual cost IL ascertaIned
whenever the overpayment is deter
mined. The premiums are paid In and lu-
terest is earned and collected year by year;
the losses and expenses are paid and the
reserve provided year by year; each years
income and outgo are balanced by them
selves. The cost of insurance is
determined and met in and for each
year by itself. The savings. surplus. or
oyerpayments, are determined IN and for
each year by itself. There is no reason
why suO u tAAo " We
each year. or such portion of it as prudence
will allow; no reason why such portion as
may be safely divided should be retained
for any period of years. Especially is this
true of any company with n considerable
business and an experience sufficient to
establish the safety of it's assumptions as to
mortality and interest and which doesn't
expect to spend for expenses moro than its
future premiums will provide.
The whole substance of mutual life in
suraGce method is that each man shall
get his insurance at its yearly cost to the
company.
The natural course of business. therefore,
in a mutual life insurance company would
be TO charge a premium certain to be large
enough for all contingencies; to select its
risks carefully so as TO keep we'll within
the assumed mortality: TO invest its re-
serves as probably as Is consistent with
perfect safety; to keep it's expenses as low
as possible; in all these ways trying to make
the yearly cost as small as possible on the
business as u whole. and then each year di-
yiding the surplus or overpayments to
those who contributed them in the proper
ton OF contribution or overpayment. so
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