Chapter XIX - Life Insurance

  • 1. A definition.
  • 2. How it is done.
  • 3. As an investment.
  • 4. Forms of life insurance.
  • 5. Mutual insurance.
  • 6. Amount of policies.
  • 7. Policies as security.
  • 8. Lapses.
  • 9. Proprietary companies.

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.


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.


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.


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.

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