Evening star. [volume] (Washington, D.C.) 1854-1972, 1891-01-15

/ ureeis, Justlce harlan, hon.. U. II. breckln-
Hon. c. H. Mansur, NJ. F. g. Butterfeld, S. A.
Robinson. E. B. Ball, DR.. J. Z. Bracket,
Capt. Mckee. James Maynard, Col. J. Bell
Brownlow, DR.. Horace Coleman, Gen. o. B.
Wilcox, Hon. C. A. Boutelle, Gen. J. C. Brock
z. Douglas King. Henry Wise GARRETT Col.
Marshal Mcdonald, Alex. Porter Morse, Hon.
| W. l.. Wilson, W. E. Faison, DIR. F. o. st. Clair,
Col: Geo. A. Armes. Merwin p. Smell, DR.. W. J..
Hoffman, Ellis Mills, DIR. ]. NJ. Toner, F. E.
Grice. Prof. j. @. Gordon. John B. Wright, r.
E Earll. Hon. J. H. Walker, DR.. James NJ.
Flint, Mills Dean, James +. Hood, Gen. Gros-
yenor, Paul Brockett, Amory Austin, Prof.
Goode, Thomas Wilson, W. v. Cox, Hon. M. G..
Emery, Gen. W. H. Lee, Hon. Gardner G..
Hubbard, Solicitor General Taft, Gen. II. v.
Boynton, Mr.. P. v. De Graw.
The Investment Feature Of Life Insurance
Policies.
Very few agents or companies offer their
policies today solely as protection to the
family. or dwell upon their adaptation to that
purpose. or urge them for that motive.
The policies, or bonds or ''consols'' of the
eager great rivals are offered as an investment
to the taker. upon a figured estimate of their
future outcome, and are urged for the personal
profit of the taker.
In legitimate mutual life insurance, the
yearly death losses, expenses and interest earn
lngs are carefully adjusted. and the result ap-
portloned to each policy, SO that each person is
yearly charged with just the yearly cost of
carrying his risk, and the remainder of his
premium is RENTED by way of dividend.
he thus knows the exact cost of his insurance
from year to- year and pays that and no more.
But the Investment policies" bonds"
'consols, dc, adopt contrary course. The
entlre annual premium or 'lnstallment IL to
be paid in full without any reduction for the
entire Investment PERIOD" ten. fifteen or
twenty years. No adjustment or apportion-
ment OF losses. expenses or earnings is made
during that period: no dividend declared or
paid; no means of ascertaining what the cost
of the operation is from year to year; no means
OF knowing what the real outcome of the
speculation is likely to he. for no statement of
account can be called for by any person either
during the Investment period" or at its close.
The holder of the policy or bond" or ''con-
SOL has to bind himself in advance in his ap-
plication to take whatever is given him as the
profits OF his venture without account or ques-
ton.
rs THIS INVESTMENT OR SPECULATION?
Investment, in the proper and conservative
sense. means putting money into scheme of
use, the expenses, profits and losses of which
are well foreseen, the fluctuations capable of
reasonably safe predetermination. and them
selves, therefore, capable of being SO weighed
and balanced that profitable result can be
forecast within q safe margin.
Speculation means putting money into a
scheme, the expenses, profits and losses Of
which are not well foreseen, or are likely to
fuctuate so irregularly, widely and uncontroll-
ably that they cannot be truly weighed and
balanced, nor the outcome brought into any
margin of safe calculations scheme in which
gain and loss are alike possible and alike I'M
certain, both as to the fact and the degree of
either.
Investment knows and weighs the chances
n hn ha 10 hn falx fhn
right side.
Speculation does not know and cannot weigh
the chances, but simply take them.
HOW CAN LIFE INSURANCE COMPANY MAKE
MONEY?
1t has two things to do; it has to pay losses
and expenses. 1t charges a premium calcu-
lated to cover the losses and the expenses. 1t
knows from its mortality tables what the losses
will be within a safe margin; it makes the ex-
penses much or little as it chooses within GER
tam limits. 1t estimates a percentage which
they ought not to exceed and adds that to the
premiums charged to cover death losses.
Ont of these premiums the company pays its
yearly death losses, its expenses and also fur
nishes the reserve to provide for the greater
mortality when its risks get older and for the
maturity of the endOwments. This reserve il
can invest until 1t il needed, and it is. there
fore, calculated on the assumption that it
will earn some certain rate of interest while
held.
II now the death losses have been less than
the table called for and the expenses have been
less than was provided for, SO much of the pre-
MUM will have been saved and can be returned
to the insurer. But it is not q profit to him. 1t
is simply saving from the anticipated cost Of
carrying his insurance But his insurance is an
expense to him just his fire insurance is.
The premium returned to him il q reduction of
the expense, not profit
IL the rate Of interest earned Is greater than
that assumed, the excess Is in the nature Of o
profit. For example, if the company assumes
that each mans reserve is going to earn per
cent and it does earn per cent then it puts
the per cent into the reserve and the extra l
per cent is surplus and can be turned back to
him with the savings from losses and expenses.
This surplus interest is usually called a profit
and is in the nature of a profit, though its
actual use Is merely to reduce the cost Of car
rying the insurance. 1t is, however, the only
profit there is to the insurer. All else is cost
Of insurance; paying expenses and helping pay
other people losses until ones own time comes
when others will pay that loss.
How can this operation be converted into
profitable investment for the insurer himself?
1t protects his family and is therefore indis-
pensable; but how can he make money out of
EXAMPLES.
Several of the great companies arc offering
under different names the same Investment
policy" bond" &c. For illustration of the
whole matter We will select what is in fact a
twenty year endowment policy, with no divi-
dends until the end of the twenty years.
THE ESTIMATED ADVANTAGE.
Take man aged thirty, insuring for S10, 600;
he is to pay twenty premiums of $496 each
The policy contract is to pay him $4,000 if he
lives and keeps up his policy through the
twenty years. But the companies estimate
that by leaving all his savings and interest
earnings with them all that time they may pay
him an additional 1000, or total Of $17 060.
which would be equivalent to compromising his
payments at 4.92 per cent.
HOW CAN THEY DO IT AND PAY EXPENSES?
This rate Of interest, 4.92 per cent, is more
than the average rate these companies are now
earning on their assets. But, aside from that
fact, the expenses Of the business and the death
losses have first to be paid.
In these particular companies the expense
ratio is about 20 per cent, or one-fifth of their
entire income. Out of every dollar of pre-
MUM and every dollar of interest 70 cents is
taken for expenses, leaving only 80 cents Of
each to pay losses and provide the final pay
ment. That is, out of each premium of s496
these companies can use for the fulfillment of
their contract and ''estimates'' only 1896. So
This would have to be compounded at 6.83 per
cent to produce the estimated S17,060, il no ex-
penses came out Of the interest; but one-fifth of
that goes to expenses also, so that to realize
the Sl7 ,O6O and pay expenses the premiums
must be compounded at S.54 per cent, or
greatly more than the rate they are now earn
ing. '..'