premium to purchase paid-up or extended insurance at the then attained age, will be greater than under the ordinary life policy. CHAPTER VIII ENDOWMENT INSURANCE Definition and Types of Policies. All the policies discussed in the three preceding chapters provide for the payment of the full amount of the policy only in the event of death. Endowment policies, on the contrary, provide not only for the payment of the face of the policy upon the death of the insured during a fixed term of years, but also for the payment of the full amount at the end of said term if the insured be living. Whereas policies payable only in the event of death are essentially taken out for the benefit of others, endowment policies, although affording protection to others against the death of the insured during the fixed term, usually revert to the insured if he survive the endowment period. Such policies, therefore, have become popular in recent years as a convenient means of accumulating a fund which will afterwards become available for the use of the policyholder. An examination of the contracts issued by different companies shows many variations in the use of the endowmentinsurance principle. Such policies may be made payable in ten, fifteen, twenty, twenty-five, thirty or more years, or the length of the term may be so arranged as to cause the policy to mature at certain ages, such as 60, 65, 70, etc. When written for such terms the purpose of the policy usually is to combine immediate protection with saving; while if written. for long terms or to mature at an advanced age the object is usually to combine protection with old-age provision. Usually the contracts are paid for by premiums (payable annually, semi-annually or quarterly) continuing throughout the term, but if desired the premiums may be paid on the limited-payment plan, as, for example, a thirty-year endow ment paid-up in twenty years. Other applications of the endowment principle have already been referred to in the chapter on " Classification of Policies," but may again briefly be recapitulated. Thus there may be "double endowments " or "semi-endowments," the first meaning that the amount payable upon survival is twice that paid in the event of death, and the last meaning that the sum payable upon survival is only half as large as the amount promised upon death. Various kinds of "child endowment policies" are also issued by certain companies. Sometimes these policies, besides guaranteeing the payment of a fixed amount upon the attainment by the child of a specified age, also provide for the return in full of the premiums paid in the event of the child's death before reaching the endowment age. Or, the policy may be issued without the return of premium privilege in the event of the child's death, the only benefit under the policy in this instance being the amount payable on survival. Sometimes it is provided that upon the death of the purchaser of the policy, usually the father, premium payments shall cease, the policy becoming fullpaid and the principal becoming due when the child reaches the endowment age. In still other instances the policy may be issued on a child's life at an early age, say at age five, the understanding being that the policy will not come into full force until the insured reaches a specified age (say age 21) and will then mature as an endowment at, say, age 50. These policies, furthermore, may again be issued with or without the returnpremium privilege. Analysis of an Endowment Policy.- Two explanations have been offered as an analysis of the nature of endowment insurance. Under the first, and this is the usual analysis, the policy is explained as consisting of (1) "pure-endowment" insurance and (2) "term" insurance. This analysis looks upon the contract as a combination of a level term insurance, promising to pay $1,000 in case of death at any time during the term, and a pure endowment of the same amount payable only upon survival at the end of the term. Several writers, however, while admitting that the above analysis is correct and convenient for purposes of mathematical computation, maintain that the pure endowment does not offer the correct explanation of an endowment-insurance contract; that there is another and more logical method of explanation and one agreeing more closely with actuarial practice. This newer explanation likewise divides endowment policies into two parts. But the investment part of the contract, and this is the fundamental difference, is not considered a pure endowment, all of which is lost in case of death before the end of the term, but is strictly a savings-bank accumulation which is available at any time to the insured through surrender or maturity of the policy. This investment feature is supplemented by term insurance, which is, however, not a level term insurance of $1,000 in amount at any time, but an insurance of an amount which added to the investment accumulated at the date of death will make the amount of the policy payable equal to $1,000. The insurance portion of the contract therefore is for a decreasing amount, being nearly equal to $1,000 in the early years of the contract and gradually decreasing throughout the term. Thus, if at a particular time a $1,000 endowment policy has an investment accumulation of $150, the insured will be protected by $850 insurance against death, but when the accumulation reaches $900 there will be term insurance for but $100. The premium for the policy may be divided into two parts, one part for the investment and one for the decreasing term insurance. Premiums Charged for Endowment Policies. Since the company's liability under an endowment policy involves not only the payment of the insurance upon death but also the full amount of the policy upon survival of the term, it follows that the annual premium on such policies is necessarily much higher, except for very long endowment periods where the rate is only slightly higher, than that charged on an ordinary life policy. An examination of the following table of rates (charged by the same company whose rates were used for purposes of illustration in the preceding chapters) shows this to be especially true when the endowment period is a short one. The large difference here indicated, although accounted for in part by the heavier loading on endowment premiums, is due chiefly to the necessity of accumulating more rapidly the investment portion of the endowment policy in order to have it equal the full face value at the end of the term. Referring to previous chapters, we saw that the reserve value of the $10,000 ordinary life policy at age 35, used for illustrative purposes, was $3,275.80 after the policy has been in force twenty years, while for the same policy on the twentypayment plan the corresponding reserve value was $6,099.20. The $10,000 twenty-year endowment policy, however, must, according to its definition, have a value of $10,000 at the end of the twenty-year period, and the difference between this value and the values noted for the other two policies must be obtained by the company through a higher premium. PREMIUM RATES FOR $1,000 ENDOWMENT INSURANCE AGE 10 YR. 15 YR. 20 YR. 25 YR. 30 YR. 35 YR. 40 YR. 45 YR. WHOLE END END RATE. 20 25 30 99.27 62.34 44.10 33.84 27.44 23.23 20.52 18.60 16.60 19.00 23.60 22.40 21.80 35 40 100.90 64.20 46.70 37.0 31.44 28.15 26.30 25.55 25.45 30.25 Functions of Endowment Insurance. In 'the past endowment insurance was frequently advertised as "investment insurance without making proper reference to the cost of the insurance protection. But as Mr. Dawson states in considering endowment and limited-payment policies as an investment," a life-insurance policy, at the best, can be compared as an investment with other investments, not accom |