portant for the salesman, after ascertaining the prospective applicant's financial ability to pay premiums and the object which it is desired to accomplish through insurance, to recommend impartially that contract which will best serve his client. The matter may be illustrated by the following example: A merchant may display a large variety of suits of clothes all valued at the same price. But, despite their common value, these suits may differ in color, style, and material. One suit may be totally unfit for the use of a prospective buyer, although inherently worth just as much as another suit which may be selected by him as meeting his requirements. In life insurance, likewise, the many policies on the market may from a mathematical standpoint be of equal value. But in selecting a contract the prospective buyer should be careful to see, and in such selection it is the professional duty of the agent to render impartial advice, that the character of the policy is such as to give him what the family or business circumstances surrounding his life require.

CHAPTER V

TERM INSURANCE

A term policy in life insurance may be defined as a contract which furnishes life-insurance protection for a limited number of years, the face value of the policy being payable only if death occurs during the stipulated term, and nothing being paid in case of survival. Sometimes such policies are issued for business purposes for a period as short as one year, and at various times such policies have also been issued upon the "yearly renewable term plan," according to which the insured could exercise the option of renewing the policy for successive one-year periods, each year's premium being regarded as the cost of that year's protection, and the premium thus increasing as the policyholder's age advanced. While this plan, also commonly known as "natural-premium insur. ance," is theoretically sound, it has proved impracticable in actual practice, because it is apparent that under this plan the premium would ultimately become prohibitive.

Owing chiefly to the aforementioned faet, the issuance of very short term policies is limited at present to cases involving business and financial transactions. In nearly all instances term policies are written by American companies for periods of five, ten, fifteen, or twenty years, although other periods are sometimes used. Such policies may insure for the agreed term of years only, or may be renewable for successive term periods at the will of the insured and without medical examination. Various restrictions are also imposed by many companies in the issuance of term contracts, such as limiting the size of the policy to a certain amount or the length of the term so as not to carry the insurance period beyond a certain stipulated age. Term insurance may, therefore, be regarded as temporary insurance, and, in principle,

more nearly compares with a property insurance policy than any of the other life contracts in use. If a building, valued at $10,000, is insured for that amount under a five-year term policy, the company will pay this insurance in case of the destruction of the building during the term; but if at the end of the specified five-year period the owner neglects to reinsure the building by renewing the policy and a fire thereafter ensues, the company is absolved from all liability in view of the expiration of the contract. Similarly, if a person insures his life for $10,000 under a five-year term policy, either keeping the policy in force by paying a single premium in advance or by paying, as is nearly always the case, annual premiums from year to year, the company will pay $10,000 in case of the insured's death at any time before the expiration of the five years, nothing, however, being paid in case death occurs after the expiration of the contract period, the term life policy, like the fire policy, having expired at that time.

Advantages of Term Insurance.-Term policies are especially designed to afford protection against contingencies which either require only the taking out of temporary insurance or call for the largest amount of insurance protection for the time being at the lowest possible cost. The advantages of this type of contract may be enumerated briefly as follows:

1. Term contracts are often desired by those who need a large amount of family protection at a time when the income is so small as to make impossible the payment of the premium for an equal amount of protection under other types of policies. This is especially the case where family responsibilities have been assumed by young professional or business men who are just starting their careers and who, appreciating the necessity of adequately protecting their families against the contingency of early death, feel that they need heavy insurance protection at small cost pending permanent establishment in their profession or business. Persons so situated may feel inclined to subordinate the investment feature in

life insurance to its protective function. Wanting all the protection possible during early years, they may feel that they can more advantageously use all available savings in their profession or business. Or, looking forward to a larger income later in life, they may reason that they can then advantageously replace or supplement this type of contract with policies of other kinds which have permanent protection as their primary purpose.

The extent to which large protection is granted by term policies for a small outlay at a time when such increased protection is absolutely needed at small cost, may be exemplified by the following rates charged by a certain company selected for purposes of illustration. The annual premium charged by this company for a $1,000 whole-life policy at age 25 (the policy in this instance being paid whenever death may occur) is $19, at age 35, $25.45, and at age 45, $36.50. But the risk of death during a limited term of years is less than that under a whole-life policy where the risk converges into certainty. Because of this fact term policies for five, ten, fifteen, or twenty years offer the advantage of a much lower annual premium. Thus in the case of the company referred to a fiveyear term policy for $1,000 at age 25 requires a gross premium payment of $11.09, and the premiums charged for successive renewals of this five-year contract are: at age 30, $11.65, at age 35, $12.50, and at age 60, $42.21. In the case of a ten-year term policy at age 25 this company charges $11.34, while the renewal premiums at ages 35, 45, 55, and 60 are, respectively, $13.10, $18.27, $34.54, and $51.20. The same principle applies to term policies for fifteen, twenty, or any other number of years. If such policies are renewable at the option of the insured without medical examination, the policyholder may feel that by a number of renewals he may enjoy a large protection for a considerable number of years at a low cost, and discontinue such renewals when the protection is no longer needed, or when the renewal rate becomes too burdensome. It should be noted in this respect that, whereas the rate for a ten-year term policy at age 25 is only $11.34, as contrasted

with $19 for the whole-life policy at the same age, the latter rate remains the same throughout life, while the successive renewal rates for the term policy increase with advancing age until they become practically prohibitive, the rate charged by this insurance company being $34.54 at age 55, and $51.20 at age 60.

2. Term insurance may also enable young men to acknowledge their debt to parents or relatives of modest means who have given them their education or who have started them in business. Under such circumstances every young man owes this debt to parents and should, as soon as he is able to pay the premium, acknowledge it by carrying insurance for their benefit so that their investment in him will be protected against the contingency of an untimely death. In the same way a term contract may enable one to provide adequately during the early years of one's professional or business career for a dependent mother, sister, or other relative. Where the age of the parent is advanced the term of the contract may be so arranged as to afford protection during the probable lifetime of the beneficiary. But where the beneficiary is comparatively young, the purpose of the term contract may be regarded as furnishing a large protection at small cost, the insured looking forward to a large income in later years which will then enable him the more readily to make the protection permanent by other types of contracts. Again, the insured may desire additional protection while his children are young and his own estate is small so that in case of early death there will be an adequate fund for educational and maintenance purposes until the children become self-supporting.

3. Such contracts are also well adapted in many instances to furnish protection against some temporary business hazard. Many such contingencies may arise, but only a few need be mentioned to illustrate the usefulness of term insurance in this connection. A business firm may wish to protect itself for a definite number of years against the loss through early death of the highly valued services of an employee or of an