Manchester Democrat. [volume] (Manchester, Iowa) 1875-1930, 1905-11-01
at the beginning of the year is called
the initial reserve, and the balance at
the end of the year the terminal re-

n
at the beginning of the year is called
the initial reserve, and the balance Mt
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 n 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 be paid on those policies.
A company starts out with 100000
policies, aggregating S1o0,000.O0O life
insurance. The present worth of the
benefits to accrue under these policies
is found to be $37 ,055, 600. This is the
sum that to-day, put out at 49, per
cent compound interest, will be suf-
ficient to pay every policy as 1t falls
due, until the last three are paid in
the ninety-sixth year.
Lapses are not looked upon as
source Of real profit. If policy hold
er fails to pay his premium ut the end
of the first or second year-that is,
lets his policy lapse-he forfeits the
pro rata of the reserve held for his
policy, but 1t is held that this amount
will barely compensate for the ex-
pense necessary to replace the lapsed
policy on the books by new business.
But ut the end of the third year and
thereafter the reserves will more than
equal this item of expense, and so the
lapsing policy holder will be entitled
to what Is called surrender value.
This entities him to the larger part
of the reserve held to meet the face
of the policy. Hence, 1t is held, laps
es do not form part of the profits.
The profits, or savings, may be ap-
portioned In various ways. If they
are apportioned ut the end Of each
year, the plan is known as the yearly
dividend plan. If there Is no dividend
al the end of the first year, the plan
is known MS 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.
IL the life insurance company is a
stock company, owned and controlled
by limited number Of individuals
termed stockholders, the stockholders
receive portion or all of the profits.
| When the policy holders of stock
company share with the stockholders
in the profits, the company is termed
n mixed company.
The two systems of profit distribu-
ton now generally in vogue In this
country are the yearly ana deferred
di, idend systems. Under these fund
is set aside at the end of each year
To be distributed among the yearly
dividend policies of company and
among such other policies as have
completed their respective distribution
periods In the words of insurance
experts, the amount to be distributed
\ in each case is policy's equitable
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 and other years
Is held as n reserve for the better pro-
lection of all policies of the company.
and for future distribution us diyi-
dends among the participating poll
cies as their several distribution peri
DDS are completed. This fund consti-
tutes the much discussed surplus
proper.
These are the main underlying prin-
ciples of scientific life insurance.
There are innnmerable technfcalities.
besides, but they concern the insur-
ance expert only, and a recital Of
them would merely serve to confuse.
To have clear idea of scientific life
Insurance. the lay reader only needs
to be familiar with the basic princi
pies here gone into.
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