Page:The New International Encyclopædia 1st ed. v. 12.djvu/252

* LIFE INSITRANCE. 230 LIFE-PRESERVERS. to enable an insurance company not only to grant insurance during the ten or twenty years, but also to give paid-up insurance for life or to pay an endowment at the end of the period, evidently when onc-lialf the payments have been made the insured has purchased some part of his endow- ment or paid-up insurance. In the last half of the century both legislation and competition worked in favor of the lapsing policy-holder. Legislation has secured him a large ])art of his reserve, while the voluntary action of the com- panies secures him at least a part of the surplus. The first legislative recognition of the right of the insured to the reserve on his own policy was the law pa-sscd by the Massachusetts Legislature in 1801. This law made it obligatory for insur- ance companies to pay to a policy-holder whose policy lapsed 80 per cent, of the reserve on his own policy. California. Maine, Michigan, Mis- souri, New Jersey, and New York have since passed similar non-forfeiture laws. Massachu- setts and Missouri exempt from the operation of the nonforfeiture law those policies which are allow'ed to lapse before two annual payments have been made; in the other States the law does not apply unless three premiums have been paid. Non-forfeiture bills have been introduced in many other Slates and failed to pass. They have now become unimportant, since the companies voluntarily ofTer as good terms as legislation wotild be apt to secure. ToNTiNE.s. Progress in this direction, however, has not been uniform. It was internipted for a time by the great popularity of the tontine sys- tem of insurance. Under this system the sur- plus and reserve of lapsing policy-holders were by the insurance contract surrendered to the com- I)any. but instead of becoming the property of the company, the agreement was that they should be divided at the end of the tontine period' among those of the insured who still survived. Under such a plan the more lapses there are the greater is the gain to those who survive. Lapses were very numerous during the period of depression following the crisis of 1873. and the tontine divi- dends were consequently large. This led to a great development of the tontine business for a time. The insurance companies were glad to en- courage it. because in the nature of things tontine policies were attractive to the very class of lives that they are most anxious to insure, tlic lives of the strong and healthy. The use of the pure tontine policy has now been almost entirely aban- doned, partly because the tontine gains were dis- appointingly small in prosperous times and with an especially select class of lives, partly on ac- count of adverse legislation. SiRREXDER Privileges. The first Massachu- setts non-forfeiture law directed that the resen'e of a lapsed policy-holder should be used to pur- chase a paid-up policy of the same kind as the policy which had lapsed, and for such an amount of insurance as 80 per cent, of the reserve would pay for as a single advance premium. Two other modes of settlement have since been introduced, extended insurance and cash pa^Tnents. Under the former method the reserve is used to continue the original policy in force as long as it suffices to pay the premiums, and in many companies the insured are allowed to reinstate their policies by making good the unpaid back premiums with in- terest at any time before the reserve has been ex- hausted. Under the second method the insured is allowed to withdraw a certain percentage of his reserve in cash. In the competition for new business the com- ])anies have found it to their advantage to go further than the law^ requires, and to return to the insured a part of the surplus in the form of dividends. These may be declared aniiuallj', or at stated periods, or at the termination of tlu- policy. hen the dividend is paid annually ii may be used either to reduce premiums or to pur- chase additional insurance. When it is |)aid only at the termination of the policj' it amounts to an adilition to the indemnity. In the case of I term insurance, however, the plan frequently em- ])loyed is to pay no part of the surplus to those who lapse or who die before the end of the period, and to use the surplus of the policies thus prematurely terminated to increase the divi- dends of those who survive to the end of the term. Such insurance is known as scmi-tontine insurance. Government Supervisiox. The chief activity of Government in the United States in respect to life insurance is supervision and restraint. The history of life insurance in the United States has shown a marked tendency to recklessness in the matter of reserves, and it is only the activity of the Government which has induced the com- panies to give to their policy-holders adequate protection. Massachusetts was the first State to establish an insurance department (1855). It was also the first State to adopt a scientific method of insuring the solvency of an insurance company. That method is. in brief, to compel it to carry a reserve sufncient to reinsure all its outstanding rislvs at net premium rates; that is, a reserve which is called for by a cal- culation based on a specified mortality table and rate of discount. The Actuaries' table and 4 per cent, were specified in the Massachusetts law, and have been adopted by most of the other States which have introduced the net valuation test of solvency. Some States, however, authorize the use of a discount rate of 4^2 per cent., which j diminishes somewhat the amount of reserve re- ' quired. Xew York originally used the American Experience table, then changed to the Actuaries' table with 4 per cent, interest, and .lanuary 1, lyOl, in recognition of the fall of the rate of in- terest in safe investments, returned to the Ameri- can table of mortality with interest of 31-. per cent. This has materially increased the amount of reserve necessary for the companies to carry. j The system of State supervision in force in the | United States has proved its efficacy during the half-century of its existence. The regular life-in- surance business of the United States is on a , thoroughly sound basis, while the companies are | left free to adopt all such measures as in their judgment will promote the growth of the insur- ance business. There is consequently a maximum of initiative in the management of the business i together with a maximum of security for the in- surcd. LIFE MORTARS AND ROCKETS. See LlFE-SAVn«G GUJJS AND EOCKETS ; LiFE-SAVING Service. LIFE-PRESERVERS. Contrivances adjust- able to the body for buoying up persons in the water. They are made of various materials and in various forms. The best kind of ordinary life-preserver, such as is used on passenger ves- sels, is made of good, sound cork blocks, or other