The Manitowoc pilot. [volume] (Manitowoc, Wis.) 1859-1932, 1905-10-26

The reserve in life insurance is sim
ply the insurance fund or mortality
fund of the company, from which all
death claims are paid. The reserve Is
made up of the net annual premiums
and the money these premiums VIII
earn ut 80 per cent compound inter
est. Neither net premiums nor the in
terest thereon can be devoted under
the law to any other use than to the
payment of death claims.
A life insurance company has Just
begun business with 81 SOD members
each at age 3d. and each holding an
ordinary life policy for $1,000 1t has
been found that the net annual pre-
MUM for this sum and kind of policy
is Sl991, This amount. collected from
each policy holder at the beginning
OF the first year, totals SlG2S, S5l.S3.
Twelve months interest on this sum
brings the total to l6S5, SCI ca. There
will be 732 deaths during the first
year of business calling for Il total
death claim payment of 1872 900. Thus
the balance at the end of the first year
will be 500, SG1G4. The sum on hand
ut the beginning OF the year is called
the initial reserve, and the balance at
the end of the year the terminal re-
serve.
The legal reserve of life insurance
is the reserve that the law requires
the company to have in order to be
solvent. 1t is Il fund equal in amount
to the excess of the present value Of
benefits under outstanding policies
over the present value Of net premi-
ums to he paid on those policies.
a company starts out with 100000
policies, aggregatng $l00,000.000 life
Insurance. The present worth of the
benefits to accrue under these policies
i, found to be $1,000 GOO, This is the
sum that to-day, put out at SO per
cent compound interest, will be suf
ficient to pay every policy as it falls
due until the last three are paid in
tho ninety sixth year.
Lapses are not looked upon as a
source of real profit. If a policy hold
or fails TO pay his premium at the end
of the first or second ycar-that is,
lets his policy lapsc-he forfcits the
pro rata of the reserve held for his
policy. but it is held that this amount
will barely compensate for the ex-
pcnsc necessary To replace the lapsed
policy on the books 10y new business.
But at the end Of the third year and
thereafter the reserves viii more than
lapSiug policy holder will be entitled
to what is called surrender value.
This entities him 10 the larger part
Of the reserve held to meet the face
Of the policy. Hence, It is held, laps
eS do not form part of the profits.
The profits, or savings, may be ap-
portioncd in various ways. If they
are apportioned Mt the end of each
year, the plan is known as the yearly
dividend plan. If there is no dividend
at the end of the first year, the plan
is known as the deferred distribution
system. Under this system, distribu-
ton may be deferred until the end of
any given number of years with sub
seQuent annual dividends.
In a purely mutual company all the
profits finally accrue to the policy
holders. the members of the company.
If the life insurance company Is a
stock company, owned ana controlled
by a limited number of individuals
termed stockholders. the stockholders
receive a portion or all of the profits.
When the policy holders of a stock
company share with tie stockholders
in the profits. the company is termed
Il mixed company.
The two systems Of profit distrbu-
ton now generally i'm vogue in this
country are the yearly ana deferred
dividend systems. Under these a fund
is set aside ut the end of each year
tp be distributed among the yearly
dividend policies OF n company ana
among such other policies rs have
completed their respective distribution
periods. In the words of insurance
experts, the amount 10 be distributed
III tdCIl cast - II IlDlltN tUullaDle
share of the gains which have accrued
during its distribution period. wheth
err that period be one or twenty or SO
years.
The balance of the savings or gains
accruing during that ana other years
is held rs 4 reserve for the better pro-
lection Of AL policies of the company.
AMI for future distribution as divi-
dcnds among the participating poll
cics rs their several distribution perl
DDS are completed This fund consti-
tutes the much discussed surplus
proper
These are the main underlying prn-
cples Of scientific life Insurance.
There are inuumcrablc technicalities,
besides but they concern the insur-
ance expert only, and a recital Of
them would merely serve 70 confuse.
To have a clear idea of scientific life
insurance, the lay reader only needs
to he familiar with the basic princi-
pies here gone into.