and the average insurance agent does not make a practice of advertising the good points of companies, other than the one whose policies he sells. The prospective purchaser should examine the annual reports of the companies, the annual statements made to his state insurance department and the gain and loss exhibit, if the latter is available. From these sources he will secure information on the following subjects: (a) the character of the investments, that is, in what manner the insurance funds are secured and what they are earning; (b) the liabilities of the company and the relation of the assets to it; (c) the expenses, that is, how much money is being spent to maintain the company a going concern and how much money is spent to secure new business; (d) the ratio of actual to calculated mortality; (e) the number of lapses; (ƒ) the amount of the surplus and the manner of its divisions, that is, how much is retained, how much is paid to policyholders as dividends, and how much to stockholders, if it is a stock company. It will also be advisable for the intending purchaser to ask the companies in which he is interested or the agents to supply him with a statement of the dividends paid on policies of the kind which he desires. This statement should show the dividends paid for the past several years, for manifestly one year's dividends are not sufficient to determine a fair judgment. He will not lay too much stress on dividends as a criterion for comparing companies, because a good policy has many other important characteristics besides good dividends. If the purchaser is seeking to compare participating T and non-participating policies, he will need to be careful, lest he make false conclusions in regard to apparent cheapness. The dividend scale on the particular policy of the participating company will aid in comparison. That is, he can deduct it from the premium and compare the result with the premium of the non-participating company. However, this is not conclusive proof. He must ask himself what returns he could secure for himself on these small annual sums which represent dividends paid to him by the participating company or not collected from him by the non-participating company. He must understand that the non-participating premium includes a loading, but not the same degree of loading as does the participating premium. Possibly some participating company can secure for him accumulations which in the end will make his participating policy quite as cheap as his non-participating policy. It is not sought in these statements to make any claims of advantages for either one or the other kind of policy, but rather to encourage the purchaser to make a careful investigation in order that he may secure that policy which is best suited to his needs. After the prospective purchaser has informed himself on these points, he will then make a comparison of the terms of the contract of different companies. This problem has been solved in part for him by the enactment of the standard provision laws which require all policies to contain certain provisions, which have been discussed in a previous chapter. There remains, however, some points of difference in the policies of different companies. He will examine the options in settlement, both upon maturing and lapsing the policy; the restrictions of the policies; the terms of conditions of loans; the freedom with which he may change to other forms of policies and change the beneficiary. He will also examine the guaranteed values, if any, on the different policies. He may also give some weight to the character of the representatives of the companies who solicit his insurance, for a good insurance company will not knowingly keep in its employment a dishonest representative. After he has made all these examinations and comparisons, the purchaser of insurance should complete the task by acquainting himself thoroughly with the terms of his contract. Every sentence deserves careful study, and he owes it to himself, his family, and society to make himself an intelligent possessor of insurance in order that he may fulfill his part of the contract, secure the protection for his family, and become an interpreter to and missionary for the uninsured. REFERENCES SURPLUS AND DIVIDENDS Fackler, Edward B. Notes on Life Insurance, Chap. XIV. Insurance Guide and Handbook, Fifth Edition, Chap. XIV. Zartman, Lester. The Investments of Life Insurance Companies. Annals American Academy of Political Science, Vol. XXVI, pp. 256-268. Dawson, Miles M. The Business of Life Insurance, Chap. XXVII. Graham, W. J. The Romance of Life Insurance, Chap. XI. CHAPTER X INVESTMENTS AND INTEREST The Importance of Investments. One of the most difficult problems in the practical operation of a life insurance company is the management and investment of insurance funds. The importance of this subject is due chiefly to the fact that these funds are advance collections from the policyholders to aid in the payment of claims which will not fall due for many years. The contract made by the company is with one person, but the benefit is usually paid to another person. It is this reserve fund which guarantees the payment at maturity of these long-time contracts in which several parties are interested and whose payment means so much to the beneficiaries. The calamity which would result if all the insurance companies should default their contracts is beyond imagination. From the previous discussions, it will be understood that the assets must be at all times so invested as to equal at least the reserve value of the policies, for this is not only a requirement of the statutes, but, as we have seen, is also absolutely necessary under the level premium plan in order to mature the contracts. In addition, those companies which pay dividends expect to secure from their investments a part of the surplus from which dividends are paid. So large in amount have these funds become and such great financial ability is required for their wise management, that this problem may well be considered one of the most difficult in the insurance business. The subject of investments will be discussed under the following heads: (a) the character of the investments in the past and present; (b) the rate of interest secured on the different kinds of investments at different periods. The topic of the legal requirements in regard to investments is reserved for a detailed discussion in a later chapter. The Character of the Investments. An investigation of the investments of life insurance companies in the past shows that in 1851 the Connecticut Mutual Life Insurance Company and the Mutual Benefit Life Insurance Company of New Jersey, which are two of the oldest and may be taken as representative companies, had 56 per cent of their assets invested in premium notes, that is, notes given by the insured for premiums due. Of the other assets derived from cash payments held at that date 26 per cent was in real estate, about 9 per cent of the remainder was in city bonds and bank stocks, and about 9 per cent was held as cash. A very marked decrease in premium notes then followed, so that in 1858 only 21 per cent of the assets of the four largest. companies was in the form of premium notes. Of the remaining 79 per cent of the assets about 67 per cent was in mortgage notes. The Cash Item. The cash item as a relative percentage did not, among companies as a whole, show any marked tendency to decrease preceding 1900. Cash held in the office has constituted a temptation which |