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CONTENTS

PART I

THE NATURE AND USES OF LIFE INSURANCE

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I.-NATURE OF LIFE. INSURANCE AND THE BASIC

PRINCIPLES UNDERLYING IT
Definition and extent of life insurance, 3. Com-
bination of many risks into a group is necessary
to make the law of average apply, 5. Necessity
of accumulating a fund for the payment of
claims, 7. Necessity of accumulating this fund
according to scientific principles and a workable
method, 7. Life insurance changes uncertainty

into certainty and is the opposite of gambling, 10.
II.-FAMILY AND PERSONAL USES OF LIFE INSURANCE

Capitalization of the value of a human life and
indemnification of that value, 14. The duty to
insure, 15.

Eliminates worry and increases initi-
ative, 17. Life insurance makes saving possible,
18. Furnishes a profitable and safe investment,
19. Forces and encourages thrift, 20. Facili-
tates the purchase of a home, 22.

Furnishes an
assured income in the form of annuities, 23.
The relation of foregoing advantages to society

at large, 25.
III.-BUSINESS USES OF LIFE INSURANCE .

Close relationship between the home and busi-
ness, 29. Life insurance as a means of indemni-
fication against loss through the death of officials
and valuable employees, 31. The use of part-
nership insurance, 34. The insurance of em-

.

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ployees for the benefit of their families, 36. Life
insurance as security for bond issues, 38. The
use of life insurance as a means of enhancing
the credit of business enterprises during times of
financial stringency, 40. The use of life in-
surance as a means of borrowing without col-
lateral, 42.

The use of life insurance as a means
of making contingent interests marketable, 45.

47

IV.-CLASSIFICATION OF POLICIES

Policies classified according to the term, 47.
Policies classified according to the method of pay-
ing premiums, 47. Policies classified according
to the inclusion or exclusion of a pure endow-
ment feature, 50. Policies classified according to
the method by which the proceeds are paid, 52.
Special types of contracts, 55. Classification of
annuities, 58. Combination of various types of
policies, 59. The several types of policies
equivalent in net cost, 60. Some policies better
adapted than others to meet the special needs of

the insured, 60.
V-TERM INSURANCE

Advantages of term insurance, 63. Disadvan-
tages of term insurance, 67. Renewable and

convertible features in term policies, 69.
VI.-ORDINARY LIFE INSURANCE

Furnishes permanent protection, 72. Furnishes
permanent protection at the smallest initial out-
lay, 73. Combines saving with insurance, 74.
Disadvantage of continuous premium payments,
76.

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72

79

VII.-LIMITED-PAYMENT POLICIES

Necessity for larger premiums under this plan
during the premium-paying period, 79. Advan-
tages of the limited-payment plan, 82. Paid-up

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and extension benefits under the limited-payment

plan, 85.
VIII.-ENDOWMENT INSURANCE

87
Definition and types of policies, 87. Analysis of
an endowment policy, 88. Premiums charged for
endowment policies, 89. Functions of endow-

ment insurance, 90.
IX.-INSTALLMENT POLICIES

99
The fundamental purpose of installment insur-
ance, 99. Ordinary installment policies, 100.
Survivorship-annuity policies, 101. Continuous-
installment policies, 102. Advantages of the con-
tinuous-installment plan, 103. Guaranteed inter-

est bonds, 106.
X.-OTHER LEADING TYPES OF CONTRACTS .

108
Joint-life policies, 108. Premiums on joint-life
policies, 108. The use of a joint-life policy com-
pared with the use of separate policies on the
sam? lines, 110. Annuities, III. Immediate an-
nuities and their advantages, 112. Other types
of annuities, 114.

PART II

THE SCIENCE OF LIFE INSURANCE

XI.-THE MEASUREMENT OF RISK IN LIFE INSURANCE,
by Bruce D. Mudgett.

119
The theory of probability, 119. The laws of
prohibility, 120. The use of this theory to fore-
cast future events, 123. Accuracy of the theory
of probabilities—the law of average, 124. Mor-
tality tables, 129. Sources of mortality tables,
130. Objection to tables based on population
data, 130. Description of a mortality table, 131.
Construction of the mortality table, 134. Kinds

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of tables and important tables used in the United
States, 136. Application of the theory of proba-

bilities to the mortality table, 137.
XII.-FUNDAMENTAL PRINCIPLES UNDERLYING RATE-
MAKING, by Bruce D. Mudgett .

· 139
Features peculiar to life insurance, 140. As-

sumptions underlying rate computations, 142.
XIII.—THE NET SINGLE PREMIUM, by Bruce D.
Mudgett.

148
Classification of premiums as single and periodic,
148. Classification of premiums as net and gross,
148. Term insurance, 149. Whole-life . insur-
ance, 154. Pure endowments, 158. Endowment

insurance, 159.
XIV.-THE NET SINGLE PREMIUM (continued), by
Bruce D. Mudgett .

161
Installment insurance, 161. Annuities, 164.

Deferred annuities, 168.
XV.—THE NET LEVEL PREMIUM, by Bruce D.
Mudgett

174
The level, or periodic, premium system, 174.
Analogy between periodic premiums and annui-
ties, 175. Continuous and limited premiums,
177. Computation of the net annual level pre-
mium, 178. Premiums paid at intervals of less
than one year, 185. Return-premium policies,

187
XVI.—THE RESERVE, by Bruce D. Mudgett

. 191
Financial importance of the reserve, 191. The
origin of the reserve, 192. Definition and pur-
pose of the reserve, 192. Method of calculating
the reserve, 196. Comparison of reserves on dif-
ferent interest bases and on different policies,
204.

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XVII.—THE GROSS PREMIUM-LOADING, by Bruce D.
Mudgett .

209
Classification of expenses, 210. The problem of
equitable distribution of expenses, 212.

Methods
of loading, 214. Loading and the incidence of

expense, 219.
XVIII.-SURRENDER VALUES AND POLICY LOANS.

229
Meaning of the term “surrender value," 229.
Extent to which policies are lapsed and surren-
dered, 230. Non-forfeiture laws, 231. Liberal-
ity of companies in the granting of surrender
values, 233. Reasons justifying a surrender
charge, 234. Various optional forms in which
surrender values are granted, 237. Development
of policy loans, 238. Nature of policy loans as
now granted, 239. Advantages resulting from
the loan privilege, 240. Extent of policy loans
and the relation of such loans to lapses and sur-

renders, 241.
XIX.-SURPLUS

245
Meaning of surplus and sources from which de-
rived, 245. Gain from investment earnings, 246.
Saving from mortality, 246. Saving from load-
ing, 247. Gains from forfeitures, 248. Methods
of apportioning the surplus, 249. Meaning of the
terms “ divisible surplus” and “dividends,” 251.
Methods of distributing the surplus according to
the time of distribution, 252. How dividends
may be used, 255.

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PART III

SPECIAL FORMS OF LIFE INSURANCE
XX.-FRATERNAL AND ASSESSMENT INSURANCE . 261

Extent of fraternal insurance, 261. Organiza-
tion, government, and legal status of fraternal

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