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The Premium defined. Kinds of Premiums. The Level

and Natural Premium distinguished. The Net Premium. Cal-
culation of the Net Single Premium. Calculating an Annuity.
The significance of interest accumulations. Calculating the
Net Premium on a Whole Life, a Limited Payment, and an
Endowment Policy. The Gross Premium. The Loading, its
basis and methods. Percentage and Flat Loading. Premi-
ums in Assessment and Fraternal Companies.

THE RESERVE AND VALUATION OF POLICIES

The origin of the Reserve. The Reserve as a mortality

fund, and as a reinsurance fund. Methods of increasing the
Reserve. Calculation of the Reserve. The Terminal Re-
serve. The Individual Reserve. Proof of the adequacy of
the Reserve. The necessity of the Reserve. The Reserve
of an insurance company compared to the reserve and sur-
plus of a bank. Valuation defined. Methods of Valuation.
Preliminary Term, Select and Ultimate Methods compared.
The relation of the Reserve to the Cash Surrender and Loan
Values. The Determination of Paid-up Insurance Value.

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CHAPTER IX

THE SURPLUS AND DIVIDENDS

Surplus defined. Its origin. Its relation to participating
and non-participating insurance. To what extent is a surplus
desirable? Its purpose. The Amount of the Surplus and
expenses as affected by legal limitations. The disposition
of the Surplus. Dividends defined. True profit and insur-
ance dividends distinguished. Methods of determining divi-
dends on policies. The difficulty of analyzing and pro-rating
insurance expenses. Legal requirements as to dividends.
How dividends may be used. Purchasing insurance. Ad-
vantages of the different kinds of policies.

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245

CHAPTER X

INVESTMENTS AND INTEREST

The importance of investments. Principles determining
the character of the investments of life insurance funds.
The investments of early companies. The cash item. Ac-
ceptance of notes by early companies and the effect. The
relation of loans to lapses, and to interest returns. Mortgage
loans. Real Estate investments in the early and present
period. Public bonds. Investments in corporation bonds.
Assumed and actual interest earning. Earnings on particu-
lar classes of securities. Legal regulation of investments.
Source of receipts and expenditures of insurance companies.

276

CHAPTER XI

INSURANCE FOR WAGE-EARNERS

ance.

Kinds of insurance for wage-earners. Industrial Insur-
How the need for industrial insurance arose. The
early industrial system. The development of the factory
system and the wage-earning class. The purpose of indus-
trial insurance. Its advantages and disadvantages. The
activities of Trade Unions in supplying insurance. Relief
Societies. Pension Plans. Liability Insurance. The early
theory of liability for injury. The fellow-servant, assumed

294

PRINCIPLES OF INSURANCE

CHAPTER I

LIFE INSURANCE AND ITS HISTORICAL DEVELOPMENT

Insurance Defined.-Insurance is an agreement among individuals of a group or between these individuals and another group called an insurance company under the terms of which each contributes to a fund out of which contingent losses in part or in whole are paid to those suffering the loss. Under normal conditions the payments to the insured individuals or their beneficiaries are paid from the individual contributions and their accumulations. In some cases, however, such as extraordinarily large losses by a fire insurance company, the stockholders of the company may be compelled to pay the losses in part or in whole. But this is unusual and when it does occur, the stockholders expect past and future contributions from the insured to compensate them for these unusual payments.

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Character of Insurance. Insurance is therefore in all its forms a method of coöperation among members of a group subjected to a risk whose frequency can be calculated with a large degree of certainty. The group as such assumes and distributes the risk, thereby reduc

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