The Birmingham age-herald., 1912-09-29
SOLVING PROBLEM OF HUMAN LIFE. How Insurance Companies
 Figure on Life CHANGE ON DEATH Companies Deal With Colossal Sums of Money Which Yield Maximum
 Interest-Terms of Policy
 Are Equitable

From the Chicago Tribune.
 If VOL were told to figure out the prob
 lem of human life and determine the av-
 craze age at which men die you would
 probably declare it impossible to do so
 with any degree of accuracy. But there's
 where you arc mistaken, for on the solu-
 ton of that very problem the great life
 insurance companies base all their finan-
 cial strength By knowing to mathe-
 nautical certainty Just how long the aV-
 craze man will live they are able to fix
 an equitable rate of insurance and main
 tain sufficient funds to meet all just
 claims, and-what is viteily important
 earn interest meantime.
 Contrary to the general belief life tn-
 surance companies are not taking any great chances, for all their calculations
 and rates are based on ascertained facts, as revealed by millions of carefully col
 lated cases. showing the average number
 of deaths per 1000 among various classes. Quoting the rate for policy is no blind, | haphazard operation, but one having a sound aeturial basis. For, while indi- vidual life is ever an uncertain quantity, | collective life is subject to a mysterious | law of average, which enables the com | panies to transform into d practical scen- | tific certainty what would otherwise re-
 main perfect lottery.
 l These vital statistics are called nor tality tables, of which there are several.
 Lives differ in quality as In length. and l there is a great difference between that of the clergyman and the saloon keeper. | There is also big difference in the dual- 1 ity and length of the lives of grocers and | coal miners, servant girls and wives of wealthy men.
 | The calculation of your life Is simple. l Let us suppose you are 30 years of age. Deduct that from so; then deduct third I from the result That makes your ex- pectation of life approximately S6 years, although you should live to be 66. Of course you may live longer or die sooner. | But this is your average, the basis Of any | life insurance contract
 1 Insurance companies, dealing with CO., | lossal sums. must obviously make their money work-yield the maximum of inter- I est. And they command some of the finest financial talent available--keen, ex- perienced men, knowing all the markets,
 always on the alert for financial bar gain" Controlling vast sums in liquid | cash, constantly augmented by current receipts, they are in the best position to | deal at the closest prices and at the psychological moment of depression or panic. Moreover, they are doubly strong. because they can always select their own time, both for buying and selling. What l the power of interest means may be gathered from two striking facts-one or ! two companies can meet all their liabili- l ties out of their interest fund alone; q
 certain big company earns over $20,0O,OOc
 a year in interest alone.
 | During the last 25 years the public have placed about s2000, ,0o0.000 in insurance pre-
 miums, while the companies have paid 1 their policy holders about s2,O0,00o,o0 o0o Whence these surplus millions? They have resulted from the accumulative po- tentlalities of compound interest. | The colossal power of that process Is
 humorously illustrated by statement
 made by an insurance expert: Had my ancestors in A. D. 1 invested for me cents at per cent compound interest. I
 should have received in 1910 little check
 for s75 762 626 113 125 o0 GOO 000 GOO GOO GOO
 Obviously I leave to him the responsib- ity of these figures, which I have not
 checked Although 1t may be exaggerat-
 ed this example fairly demonstrates the potentiallties of compound interest over i long periods.
 | The essence of insurance Is foresight, | the adequate provision of contingencies and even possible disaster. That Is why l the companies usually charge in the pre- miums collected an extra amount to meet any unexpected call on the funds and
 also for any slight miscalculation In their | estimates. The interest earned may be less than anticipated; more people may die during the year than the average in- dicated; expenses may be higher. To meet these possible circumstances. the | policy is loaded with an extra amount More frequently than not Is found that | such precautions were unnecessary, but | this merely means that the money is
 available for increasing the bonus, reduc- | ing the premiums, or for strengthening | the reserve.
 While the management expenses of each company must obviously vary according to the class and magnitude of the busi-
 ness transacted. and also the financial
 and administrative ability of the directors and officers, 1t remains true that the sources of profit are practically the sanle the amount of interest earned on the ac- cumulated funds available for invest ment, by the working expenses being be- low what have been estimated and pro- vided for; by the death rate being below the calculated percentage: by the lapsing and surrender of a certain proportion of the contracts.
 As regards the policies lapsing. this oc- CUTS when the policy holders circum-
 stances compel them to cease paying premiums, taking the actual surrender value of the policy as security. Many people suppose that the companies' in-
 terest is to see policies lapse. They do.
 of course, make a profit out of the iapses. but that is not always very sub
 stantial certainly not when the Iapses
 occur within two or three years of the
 Insurance of the policy. for tho expense
 of securing the business. commission, etc,
 does not leave much margin.
 When the premiums have been for
 considerable time policy need not be a1-
 lowed to lapse, for it's holder can claim a surrender value. which varies from third to half of the total premiums paid.
 Of course the terms offered by the va
 rious companies differ materially, but
 where man has paid say. 15 premiums
 of s75 each. he may depend upon receiv-
 Ing back from the s1i25 paid in from
 s375 to $50 in cash. Or he can accept a
 fully paid up policy for a smaller amount. so that he will still secure a pro-
 portionate benefit without any further
 payment of premiums. One of the most