Pittsburg dispatch. [volume] (Pittsburg [Pa.]) 1880-1923, 1892-01-28
INSURANCE OF LIVES.
The Recent Remarks of Matthew
Marshall Call Forth
An INTERESTING CRITICISM.
Errors Commonly Made by Those Not fa'
milar With the Business.
BIG BUILDINGS SAFE INVESTMENTS

An article appeared IN your ISSUE vi
Monday by Mr.. Matthew Marshall which,
as it written by one who is evidently, from
his article and from his own admissions, not
familiar with the principles of life lnsur-
ance, might convey an erroneous impress
sion. If you will allow me the use of your
columns would like to correct few errors
he makes and which are commonly made by
others
The first error he makes, and one COM
monty made by those unfamiliar with the
principles of life insurance, is in stating
that the surplus of the company is so much
unnecessary profit which the company's
officers, directors or trustees have made
from policy holders. The facts are that the
surplus of nearly every large life insurance
company in this country belongs principal
". if not altogether, to its policy holders,
and it is merely money which the company
have on hand to pay dividends at some
future time. For instance, of the surplus
of the company referred to, about S14,-
10000, nearly 100000 of this sum is to
pay dividends on Tontine policies which
have not vet matured. 1t is virtually a
sinking fund to meet its Tontine obligation,
and therefore cannot by any possibility be
construed to be an excessive profit which
the company has made from insurance.
Moreover, the company referred to, as is the
case with nearly all life insurance companies,
is a mutual company. There are no stock
holders or directors who have any legal
right to make any money from the company
other than to pay the actual expenses OF its
management.
What q Surplus indicates.
This fact is often overlooked by persons
bo i,noriDo that life insurance oor0na0ipS
are stock corporations, and the impression
is often erroneouslv conveyed that the as
sets or surplus of life insurance companies
are profits from the business. It is Just as
when railroad company is gathering to-
gether money to meet interest due, say JAN
uary 1, on large amount of outstanding
bonds or stocks, except that the obligations
of life insurance companies, instead of fall
ing due at the end of each year, are gen.
orally deferred, so that under certain forms
of policies dividends are payable at the
ends of longer periods, from five to 20
wears The fact that the company has
large surplus is only evidence that it is
making provision very wisely for the pay
ment of these obligations, and instead of
showing an exorbitant profit to the COM
pany shows that it is laying up for its pol
icy holders handsome dividend, which the
policy holders and not the company will
get in due time.
Similarly the assets of company are a
sinking fund 10 meet its obligations as they
fall due. When company issues policy
for $1,000 it assumes a liability to pay
s., 900 at a mans death, or if an endowment
policy, at the end of certain number of
wears, saw 20. The law wisely provides
that the onpanv shall begin to make pro-
vision for the payment of these claims as
they mature and all the company's assets,
except the surplus, are what is technically
called liabilities, or rather the sum of
money. which with interest and future pre-
miums, will meet the company's obliga-
tions as they mature.
Tables Not Based on Unsolicited Lives.
An erroneous point made by the writer of
the article referred to is that the companies |
charge too much money, which in his uDfa- |
miliarty with the business, he assigns to the |
alleged fact that their tables are based on |
unsolicited lives" The fact is that most |
companies are doing business on the Ameri- |
can experience table, made up from 80 wears.
experience of the Mutual Life Insurance
Company's policy holders, which are GER
tainly selected life, or the actuaries table
from the experience of IL life
Offices in England, also selected lives. 1t
is true that the company referred to uses
the Carlisle table, which is not based on
lives particularly selected but lives taken
in a very healthy locality in England and
taken at large. But one of the main objects
in having examinations required by life
insurance company is to prevent selection
against the company. For example, it
would not cost company very much more
than usual if it would insure the entire
population of Pittsburg as it stands The
loss would probably not exceed the
oil fob 41r- |
it would somewhat. But if no medical
examinations were required as rule the
sick people of Pittsburg would insure and
the healthy ones would not, so that the COM
pany's actual experience would be far
greater than the average, and to prevent
this the company require examinations so |
that they may not be thus selected against
The surplus and assets do not come wholly
from the saving from mortality, nor do L
believe they come principally from this
source. The mortality experience of most
life insurance companies is from 75 to %
per ceut of the expectancy so that there is
not very much margin from saving on NOR
Iality.
The Commissions Not Extravagant.
The writer again speaks of the enormous
paid to agents, saying that they
are far greater than paid for similar service
familiar with life insurance knows how wild
an eIaggeration this is. Such business as
accident insurance, fire insurance, fidelity
insurance, plate glass insurance, etc., can
iairly be called similar businesses ard any,
1ne knows that the ratio of expenses TO in
come of life insurance companies is from
,ne-quarter to two-ffth's of that of any of
he similar businesses. 1t must not be for
rotten that in most other kinds of
insurance companies the agent receives
Is much commission for the renewal Of a
policy as he does when it was first secured. |
N life insurance company most agents re-
eive commission on the first premium
,nly, and after that no one receives any-
hing but small collection commission,
which is perhaps only one fifth of the com
mission paid for renewal premiums in other
orms of insurance. Of course, one not |
linking Of the matter NAV suppose that
he commission paid on the first premium
s excessive, but if you spread that same
mount over 20 premiums The commission |
viii seem very small, particularly when !
ompared with other forms of insurance
In concluding he speaks OF Expensive !
flee buildings" erected by companies. 1t
familiar tact that with most companies
hese Office buildings are the most profitable
Investments they have and are put up prin-
ipally for investment. The companies
themselves occupy generally but d very
mall portion of the total space of the
uildings.
Careful Concerns Should Tse Safe.
His conclusion that life insurance COM
any should be first of all safe is one that
vervbody, of course, will concur with him
i, but the idea conveyed by his article that
lsurance companies have gone so far to an
Xtreme in this reSpect as TO charge a very |