Net Prem.[2] Margin. Total.
At single premium. $687.228 $71.6394 $758.8674
At five premiums. 150.615 12.9769 163.5939
At annual premiums. 84.172 5.5340 89.7060
[Footnote 2: Thirty American offices. Discount from middle of year,
Vx-½ or (M x 1.01961) / Dx.]
By the actuaries' rate we have, with the customary loading for
expense:
Single premium: $721.66 (loaded, $34.36). Five premiums, $188.70
(loaded $37.78). Annual premium, $105.65 (loaded $21.11).
Admitting the correctness of the new method, we must conclude that the
present single premium is not sufficiently loaded to cover its own
expenses, while the annual payment policy pays more than its just
share. A prominent and thoroughly informed life insurance president
says in this connection: "Many of the policies, particularly the short
term endowments, are charged with too high a percentage of expenses to
prove a good investment at maturity or profitable to the insured in
case of surrender." This is not to be wondered at when the applicant
for a 10-year endowment policy sees at a glance that he must pay, in
the gross, more than is returned unless he should die in the interim,
in which case a plain "life" or "term" policy would have answered the
purpose. Under the new system of assessing expenses one form is as
desirable as another, from the standpoint of the insured or the
company.
The new premium for the 10-year endowment policy, $89.71, commends
itself at once to the applicant, who can easily see that his total
outlay must fall short of the amount ultimately to be realized, of
course, disregarding interest and probable dividends in both cases.
In discounting the future expense contributions I have not taken the
chances of dying into account. Hence the expense reserve in any
instance applies only to that individual case, and, in the event of
death or surrender before the maturity of the policy, the amount of
the expense fund not used would naturally revert to the insured.
The scheme of expense assessment outlined above will doubtless be
pronounced impracticable by the majority of insurance men.
Such a far reaching reform is too much to hope for, at least in the
immediate future.
No well informed life insurance expert will deny that there are
opportunities for improvement in the business, but to graft new
methods on old companies is a hopeless undertaking.
It is well, however, to have new methods well matured in advance of
the public demand, and I feel convinced that the ideas here set forth
are in the line of the reform which, before long, must be instituted
by the companies if they would retain the confidence and patronage of
the community.
Doubtless many insurance presidents could tell of suggestions which
have impressed them favorably and which they would gladly have adopted
were it not for the injustice done thereby to older members and the
changes necessary to bring existing contracts into conformity with the
new system. Similar objections may be urged against the ideas here
advanced, and I must confess I hardly see a way by which the present
suggestions can be utilized by existing companies. We can only hope
that sooner or later some of the new theories may be practically
tested. Meanwhile the companies at present in the field are doing a
great work for the good of humanity, even though their methods may be,
in some particulars, more practical than scientific.
Winchester, Mass. FRANK J. WILLS.
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