interim, so little pains was taken to inform the public upon the system, that in 1842 the amount assured probably did not exceed $5,000,000. But, in a Christian country, all material enterprises go swiftly forward, and of late years the progress of life assurance has equalled that of railroads and telegraphs; so that there are in the United States at least fifty companies, which are disbursing in claims, chiefly to widows and orphans, about five millions of dollars annually.
With this large extension of business, the fundamental principles of life assurance are now universally agreed on; but, in carrying them out, there are differences deserving attention.
Life-assurance companies may be divided into three classes,—the stock, the mutual, and the mixed. In the stock company, the management is in the hands of the stockholders, or their agents, with whom the applicant for insurance contracts to pay so much while living, in consideration of a certain sum to be paid to his representatives at his death; and here his connection with it ceases; the profits of the business being divided among the stockholders. In the mutual company the assured themselves receive all the surplus premium or profit. The law of the State of New York passed in 1849 requires that all life-insurance companies organized in the State shall have a capital of at least one hundred thousand dollars. Mutual life-insurance companies organized in that State since 1849 pay only seven per cent on their capital, which their stock by investment may produce. In the mixed companies there are various combinations of the principles peculiar to the other two. They differ from the mutual companies only in the fact that, besides paying the stockholders legal interest, they receive a portion of the profits of the business, which in some cases in this country has caused the capital stock to appreciate in value over three hundred per cent, and in England over five hundred per cent.
To decide which of these is most advantageous to the assured, we must consider the subject of premiums, and understand whence companies derive their surplus, or, as it is sometimes called, the profits. This is easily explained. As the liability to death increases with age, the proper annual premium for assurance would increase with each year of life. But as it is important not to burden age too heavily, and as it is simpler to pay a uniform sum every year, a mean rate is taken,—one too little for old age, but greater than is absolutely necessary to cover the risk in the first years of the assurance. Hence the company receives at first more than it has to pay, and thus accumulates funds to provide for the time when its payments will naturally be in excess of its receipts. Now these funds may be invested so as of themselves to produce an income, and the increase thence derived may, by the magical power of compound interest, reaching through a long series of years, become very large. In forming rates of premium, regard is had to this; but, to gain security in a contract which may extend far into the future, it is prudent to base the calculations on so low a rate of interest that there can be a certainty of obtaining it. The rate adopted is usually three per cent in England, and four or five per cent in this country. But, in point of fact, the American companies now obtain on secure investments six or seven per cent.
Again, in order to cover expenses and provide against possible contingencies, it is common to add to the rates obtained by calculation from correct tables of mortality a certain percentage, called loading, which is usually found more than is necessary, and forms a second source of profit.
Again, most tables of mortality are derived from the experience of whole communities, while all companies now subject applicants to a medical examination, and reject those found diseased; it being possible to discover, through the progress of medical science, even incipient signs of disease. Hence one would expect that among these selected
