New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1891-01-14
THE INVESTMENT FEATURE
Life Insurance Policies.


10 ,hat nurpose or urge them for that motive
The policies or bonds or 'eonsolS oil inc eager ei'
rivals arr offered an investment 10 inc '"Ser' 'p.
ncurcd cstlmste OF their future outcome anu 'ro s "
the D rsona profit OF the taker -,
In legitimate mutual life Insurance. uS 'o'is 49,
losses. EXPENSES and interest earnings are carefully ad
usted and result spportionod TO eacn poley ~ a ~
tach person Is yearly charged win 'us' ,ne 'y "a
carving his risk and the remainder OF his premium - r
.od Inv way Of n dividend. He thus knows the exact
o Of his insurance from year TO year and pays tna' an"
no more. ..-s, m
pu, tho nloyesnent policies" "bonds" "eonsols," &c.
son, contrary course The entire annual premium or
amenp' Is TO be paid in full without any reaae
for thu entire "inycstment period" ten. heen or twenty
wars No adjustment apportionnlent OF io''e'' -
ppnses or earnings is made during ua' pe',V ~ A..
dend declared paid no means oil assefSin'ns ""s -,
cost OF tho operat from year TO year no he' "
owing what The real Of the speculation Is likely
70 be fer no statement OF account can De eaisd 10, 70
any person either during the 'lnvestment pero' OF Az ~
close The holder Of the policy or 'ooha or .o"'o
10, IN hind himself m advance in his application 70 taA"
, ~ c,veuaim "a the profits OF his venture without
account or question
Il THIS INVESTMENT OR SPECULATION
Investment In the proper end conservative sense means
putting money scheme OF use, the expenses pon
and losses OF which well foreseen the huctuato ~
HE ~ reasonably safe predeermnaton, and themselves
therefore GAMBLE OF being weighed ana oaiahceu "
prontab result can forecast within SAFE margm
Speculation putting money into seheic ''o 20.
nenses rronts and OF which are not "o iofe''
or are likely to auctuae lrrceuarly, widely ana un'
controaby chat they cannot be truly weighed anu o''
,ced nor the outcome brought into any margin Oh Ss'e
calculation; scheme in which gain and loss are aiihe
no,sbe and alike uncertain, both AS to the isct anu o
degree Of either - - ..o,
Investment knows and weighs the chances ana ascer
,.ina the balance to be safely the right side
Speculation does and cannot weigh the chance'
but simply takes them.
HOW CAN A LIFE INSURANCE COMPANY MAKE
MONEYS
1t has two things to do it has to pay losses anu Ca
penses 1t charges a premium calculated 70 cover inc
losses and the expenses. 1t knows from iS nora'S D
what the losses will be within safe margin IL makes inc
expenses much or little it chooses within certain i
It estimates percentage which they ought ho' W
and adds that TO the premiums charged 70 eo'ef N"
losses. ., ...,h
ont of these premiuns the company its yearly dean
losses ts EXPENSES and furnishes the reserve 70 pro-
vide for greater mortality when us fsh' se' o ~
for the maturity the endCwments ms reserve " S"
vest until 1t ana IL Is, therefore, Oh ~
ssumption that IL will some certain rate Oh 'ere''
while held. $3.50.
If now the losses have been less tnan inc o'
called for and tho expenses have been less thah was p
yided for so much the premium VIII nave peeh Sow"
and can be returned insurer But II Is not p'n
to him. 1t is simply saving from the anticipated cost Oh
carving his insurance his insurance Is an expense 70
him st as his fire is. The premium returneo "
him Is e reduction OF the expense, not proht'
n
sumed the excess in the nature OF pront fof Ga
ample the company that each mans reserve IS
going per cent. and 1t does earn per ce ~i
puts the per into the reserve and the extra per ee
is surplus and turned back TO him with the savings
from losses expenses This surplus interest Is uu
called profit anu is in of profit, though us
actual merely to reduce the cost OF carrying inc M
surance 1t is however the only profit there Is 70 the H.
.urer All else OF insurance; paying expenses ana
helping pay other peoples losses until ones own ume
comes, when others viii pay that loss
How can this operation converted into profitable In
vestment insurer hlmselff
1t protects family ana is therefore indispensaos ou'
how can he make money out OF III
EXAMPLES.
Several Of the grea companies Offering under differ
ent names the same Investment policy" "Dond' &c
For illustration Of the whole matter we will select what is
in fact twentyyear endowment policy with no d'aehds
until The end OF the twenty years.
THE ESTIMATED ADVANTAGE
Take man aged thirty insurIng for 100000 he is to
pay twenty premiums OF s496 each The policy contract
f. to nay him coo II he lives and keeps up his policy
through the twenty years. But the companies estimate
that BY leaving his savings and nteres: earnings with
them all that time they may pay him an additional $1Ooo
or total Of 0G0 which would be equivalent 70 CON-
pounding his payments at 4.92 per cent
HOW CAN THEY DO 1T AND PAY EXPENSES
This rate OF interest 492 per cent. is more than the
average rate companies earning on their as
SETS But aside from that fact the expenses OF the bus
ness and the death losses have first TO be paid
In these particular companies the expense ratio is about
20 per cent onehfth OF their entire income Out OF
every dollar premium and dollar OF interest 20 cents
h taken for expenses leaving only so Of each 10 pay
provide the final payment That Is out OF each
premium 90 these companies can use for the fuinent
OF and estimates" only sS96SO This would
have to compounded S cent to produce the est
mated ST. 900 no expenses ont Of the interest but
onenh expenses also so that to realize the
s17 900 and pay expenses the premiums must be CON-
pounded 54 cent greatly more than the rate tey
are now earning
HOW MUCH CAN THEY Do7
These companies under present conditions can hardly
hope to their expense account to earn more
than per cent their assets for the next twenty
years Assuming that they certain to earn that much.
and taking 20 per cent OF premiums and OF interest for
expenses and providing for expected losses the result at
the end OF the period" would be just s10s17
instead Of the ESTIMATED" $1,000 shrinkage OF s6243
result equal to the premiums compounded at per
cent In what sense this be called profitable in
vcstment for ones self HOW any purely financial
operaton that manufacturing mining or other
wise productive business advenurthat has 20 bear such
an expense account be considered profitable invest
ment7
HOW CAN THEY MAKE Up THE SHRINKAGE OF
s62i3,
to realize which would require them not only to do bust
ness without any expenses at all, but also 70 earn for
twenty years greater of interest than they have
reasonable hope Of DOING
THE EXACT EFFECT OF THE EXPENSE ACCOUNT
OF THE INVESTMENT
These companies having to use one.hfth OF every
premium and payment for expenses and earning.
say even per interest be certain Of producing
no moro than s10Sl7 In twenty years.
savings bank paying its depostors per cent inter.
est after paying its slight expenses could take the same
premiums pay losses and return at the end OF
twenty years SIS ,oo7 instead Of sio.s17.
savings bank paying only per cent interest could
take the some premiums pay the losses and return
at the end OF twenty years s4l74 instead OF the life
insurance company's sl0S17.
THE WHOLE TRUTH is
that no financial operation which has to bear life insurance
expenses can or ought be called Investment and that
no man can justify his Judgment investor when he
paws fc expenses for the accumulation OF his
money or fr snv other purpose than providing his family
Il tha.,