LIFE INSURANCE
Life insurance may be defined to be "A contract for the future
payment of a certain sum of money to a person specified in the
body of the policy, on conditions dependent on the length of some
particular person's life."
There are two parties to this contract--the insured and the
insurer.
The purpose of the insurer, if he take out the policy in his own
name, is to provide in a measure for the care of his family, or
other dependents, in the event of his death.
After a long experience with the death rates in all lands that
keep mortuary statistics, the actuaries of insurance companies can
now estimate with surprising accuracy the probable length of life
before any man of any age.
The methods of insurance companies mean to be scientific, but be
that as it may, they are certainly interesting.
HOW IT IS DONE
Let us take a young man of thirty, married, with one child, in
good health, and in receipt of a fair salary, but with no property
to leave his wife and little one in the event of his death.
To secure his dear ones, he decides to insure his life for, let us
say, $3,000.
He fills out the blank, in which his age and all the other
required information is given; then the insurance company's doctor
examines him and he is accepted as what is called "a good risk."
Now, from its actuary tables, the company knows, with reasonable
accuracy, the number of years this young man should live, barring
accidents.
Already they have their tables of calculations for such cases.
They know what expense will be required in the way of rent,
clerks, advertising, etc., to care for this case till the
prospective, the inevitable end is reached.
On these calculations the immediate and all subsequent premiums or
payments are based.
The insurance company invests and reinvests the premiums, and the
total of these, it is estimated, will meet the expenses and the
amount of the policy at the time of its calculated expiration.
AS AN INVESTMENT
If the young man in question had the money, he would find it to
his advantage to buy a paid up policy, that is one on which no
further premiums would be required.
But, having the money for a paid up policy, could not the young
man, without any expense for clerk hire or rent, invest it, and
reinvest it with the interest, as long as he lived, and thus make
by insuring himself?
There can be no question as to that, provided always that the
young man lived out the calculated time, invested his insurance
money at once, and kept on investing it in "safe things" as long
as he lived. But how many young men are there who could or would
take this course?
It is much easier to save from our earnings than it is to invest
those earnings wisely.
FORMS OF LIFE INSURANCE
The straight life policy, payable to the heirs at death, is the
form in general use, but there are others.
There is yet another form, known as the "endowment," which in
itself combines the usual life insurance with some of the
privileges of a savings bank.
The endowment policy, while payable if death should occur before a
fixed time, specifies the date when it shall be payable to the
insured himself, if he should live till that time.
In this case the family is secured, in the event of death, and the
insured has a guarantee for himself when he reaches life's
unproductive years.
The premiums on an endowment policy are necessarily greater than
those on a regular life, and the premiums increase with the
shortness of the time.
MUTUAL INSURANCE SOCIETIES
Seeing the vast sums accumulated by what are known as "the old
line companies," despite their high salaries and great expenses,
working men throughout the world, but more particularly in the
United States, have banded together and formed mutual insurance
companies.
These companies, there are many of them, are known as societies,
and their local branches are called "lodges," "councils" or a
similar name.
Properly conducted, these mutual societies should be able to
furnish insurance at about actual cost, for the expenses of
management and collections are small.
It can be said that some of them have been and are being well
managed, but others, like their predecessors, the old line
companies, have unfortunately been conducted for the enrichment of
their promoters.
The mutual insurance companies, like their more pretentious
prototypes, are now placed under the supervision of inspectors in
nearly all the states.
AMOUNTS OF POLICIES
In the society companies, there is a limit to the amount, usually
$3,000, for which one can be insured, but the regular companies
have no such limitation.
In the mutual insurance companies, the insured cannot leave his
insurance to his creditors, or to any one not within a certain
degree of kinship.
In the regular companies a man may insure for any amount he thinks
he can carry, and he can insure in the same way in any number of
companies, and he can leave the money to any one he may select, or
for any purpose he may choose.
Sometimes the policy is made payable to unnamed executors. These
may be named in a will made after he has taken out his policy.
POLICIES AS SECURITY
Sometimes a man, without real estate or other personal assets,
desires to raise a loan on his life insurance, which, it should be
said, is a form of personal property. In this case he may assign
his life policy, or his endowment policy, as security for the
loan.
Again, if he is not insured and has no shadow of an asset, he may
have his life insured for the benefit of another, in consideration
for a loan.
LAPSES
When there is a failure to meet premiums, the policy is said to
"lapse" or default.
Even in this case the insured has an equity.
Every policy, depending on the amount paid, has what is known as a
"surrender value," and by proper process this may be collected
from the company.
In some states, if the insured fails to meet his premiums, the
company is compelled to pay on the policy at his death a sum
equivalent to that which he paid before default.
Some insurance policies have a clause stating that the contract
will be void in the event of the suicide of the holder. The
highest courts have set this clause aside. The ruling is that a
suicide is an insane man, and that his heirs should not be made to
suffer for his misfortune.
PROPRIETARY AND MUTUAL COMPANIES
The larger insurance companies may be either proprietary or
mutual, some are a combination of both.
The proprietary companies are corporations organized by a number
of men to conduct life insurance as a business enterprise.
Such a company must be regularly chartered, and is under the
supervision of the state department of insurance.
Mutual companies, as the name implies, are organized and are meant
to be managed for the benefit of the policy holders, who are also
regarded as stock holders, with the right to vote in the election
of officers and other company affairs.
Aiming to create a strong reserve fund to secure the policy
holders, the mutual life insurance companies usually charge a
little more in the way of premiums.
Many rich men have their lives insured for great amounts. This is
done that their heirs may not be forced to break up the estate, at
death, in order to settle the ordinary liabilities.
If it can be afforded, it is always well to carry some life
insurance.