The news & observer. [volume] (Raleigh, N.C.) 1894-current, 1905-05-03
AS TO LIFE INSURANCE.
Every Dollar of Surplus Beyond
Amount NeceSSarv to Mature the
Policies Should be Divided.

Policies SHOULD DE
To the Editor: / regret very much
to go into public print, but your ar
ticles on the subject of life insurance
which have recently been appearing.
are so misleading and SO widely at
variance with the facts, and believing
that these statements are made
through a lack of information and
not from any intent to- mislead the
public, I feel that in justice to you
and the public some one ought to
give the facts as they are.
For instance, in your article in yes
terdays paper under the head of
Startling Figures, you say: 1T is
startling to know that policyholders
pay out nearly $500 for every dollar
that is paid back to them Now
you must know, because it must be
plain to every sensible man in this
country, that the best business men
in America would not patroniZe any
institution that openly and tiagrantly
demanded of them $500 for every
dollar they paid out. The statement
is absurd on the face of it, and shows
that you do not understand the first
principle of the life insurance bust
ness.
A life insurance premium is COM
posed of three elements: First, the
1nOTludry element WHICH SOeS " pay
the current death losses of those who
die prematurely, and who fail to live
out their expectancy; Second. the eX-
pense element, which is the necessa-
ry amount to be used in conducting
the business of the company; Third,
the reserve element which is GER
tain amount of money, which placed
at per cent. interest during the ex-
pected life of the policyholder, will
produce the face value of the policy.
The reserve element comprises on
an average, about two-thirdS of the
premium. This amount of money is
laid aside each year to accumulate at
compound interest, to mature the
policy when it be comes a claim by
the death of the, policyholder. Conse-
quently, if a life insurance company
with increasing liabilities every year
pays out as much money as it re-
ceives, it would soon be insolvent. but
this reserve which has accumulated
to mature these policies is not a
surplus, but is a liability. 1t is not
the property of the company, but it
is the property of the policyholder
and can be withdrawn in cash at any
time 1t is not any more the property
of the company than the millions OF
dollars deposited in e"vspgs E1nks Is
the property of the savings bank. The
principle in the two cases is exactly
the same and if life company do
ing businees fails to accumulate assets
while it is increasing its liabilities,
any business man can see at glance
that it will be only matter OF snort
time before this company must fail.
The business of life insurance is an
exact science and the cost is as fixed
and certain as the cost of producing
cotton and corn; because while the
L e q 10
the average life of mankind is as
fixed and certain as any law of ma
ture. The only element of uncer-
tainty connected with the making OF
life insurance premium IS the
fiuctuation in interest receipts and
the prudence with which the compa-
ny is managed from an expense stand
point, and the life insurance compa-
MES could fix the rate at its actual
cost but for these uncertainties. But
since allowance for continual and
uncertain fluctuations must be made,
we can secure absolute certainty only
by an excess of caution in our as
sumptions in fixing the cost OF insur-
ance We must be reasonably sure
that we are somewhat overcharging,
or we are not reasonably sure that
we are charging enough.
Nearly all of the great life insur-
ance companies are purely mutual.
They have no stockholders, and all
of the profits at the end of the year
over and above a small amour. or
surplus to safeguard the company, is
returned to the policyholders. The
reason and intent OF mutuality in life
insurance are rooted in the appeal
to conscience and the offer of assist
ance in duty, pleading the family's
need and the fathers inability, and
Offering it's service to solve the di-
lemma as far as possible. 1t sets
itself to do equity to all. 1t proposes
as its peculiar part in giving his
family protection to make him pay
only it's actual cost without profit to
any one at his expense. But for the
elements of uncertainty in it's interest
and expense elements, the insurance
would be furnished at actual cost,
but having to reckon with uncertain
elements, these companies add GER
tain per cent for emergencies, which,
if not used, is returned to the policy
holder at the end of the year in the
form of dividends. That is what mu-
tuality is for in life insurance. 1T
gives to each member his insurance
at its exact cost to the whole mem
bership. What in stock company
would be annual profits to the stock
holders, is annually to go back to the
members of the mutual company in
order that they may in reality pay
only what their several risks have
cost.
Mr. AMI Dodd, the president of
the Mutual Benefit, of Newark, n. j.,
the company which / represent, in
his annual report to the company
few years ago. stated: THE aim of
our company is to afford life insur-
ance to it's members with the least
outlay on their part consistent with
the perfect security of their policies.
We do not withhold dividends for
the purpose of increasing the volume
of assets and exhibiting large sur
plus to be distributed at the end of
period of years. Our methods in
this respect are the opposite of the
So-called tontine. We discard for
FIXTURES, and lend all possible aid to
our members to keep their insurance
We lend them, when desired, por-
ton of the reserve belonging to their
policies whereby they can more east
ly keep them in force and also meet
any other occasional need. We re-
turn to them the surplus arising from
their payments each year so that
they are not exposed to uncertainty
or Elusive estimates as to the cost
of their insurance; and SO that if dis
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