§ 8. The choice of a policy. The choice of a policy by an applicant for insurance presents much difficulty in view of the manifold differences in the details of the various con tracts, the contingent nature of so many features on which the ultimate cost will depend, and further because of the various circumstances of the insuring individuals, making different policies suitable to their different needs. Moreover, the advice of the agent is too often of little assistance, when it is given in view of the amount of his commission, and with the desire to make an immediate sale, rather than with regard to the true interest of the insured. The first condition of a wise choice is to get into a sound company, of which there are now many, for mere size does not necessarily in dicate either superior soundness or superior economy in a reserve company. The various policies written by any hon estly conducted reserve company are all actuarily equivalent on the basis of the assumptions made, and all provide re serves adequate to meet their outstanding contracts. There are certain questions on which the applicant must be clear and which he alone can answer.
(1) What is it he most needs—is it the protection of incur• ance, or is it an opportunity to deposit savings regularly? The insurance method differs from the method of depositing savings by its contingent nature, the resulting income of any individual being possibly much greater than the amounts actually saved (e. g., when the insured dies or is injured soon after taking insurance), and possibly less or nothing at all.
(2) What is the period within which insurance is most needed? (3) How much can he devote to insurance or to saving respectively, and how will this amount probably change in the course of years, increasing or decreasing? The premium in personal insurance (life, accident, sickness, invalidity, old age pensions) is in almost all cases paid out of some current income. The premium paid is just so much subtracted from the amount available for present direct use and applied to the purchase of future incomes for one's self or family.
(4) What would be the most suitable mode and distribu tion of indemnity payments? The payment usually takes the form of a lump sum payment at death or at the maturity of the endowment. In recent times there has been a growing use of original forms of payment which give to the bene ficiary annual or monthly instalments for a definite number of years or for life.
In the light of the foregoing discussion, it is apparent that the more immediate and greater the need of insurance, and the more limited the present income of the insured, the briefer the term for which insurance should be taken for the greater the amount of indemnity that can be bought with a given outlay. A young man in his twenties or thirties, with a limited salary or with his capital invested in business, needs particularly to protect his wife and his children until they are of age. The difficulty with term policies, especially for shorter terms, is the stepping up of premiums, which later makes the cost prohibitive. However, life insurance is essentially needed by one having dependents (wife, young children, sisters, parents, etc.), and is far less often impor tant to the older man than it is to the man between twenty and fifty years of age. A good golden mean for many men is a twenty-payment life policy, its surrender value at age fifty-five being an endowment for nearly two thirds the face of the policy. The best general purpose policy for the active business man who can use and invest his funds safely and well is the "straight life." A very desirable kind of in surance (as yet little developed) for salaried men is that terminating at some chosen retirement age, (say sixty-five years) combined with an old-age pension for life thereafter.
§ 10. Future of insurance. It is striking evidence of the importance of the marginal principle' that insurance should still be desired by men when the cost is so high and so large a part of the total premiums is absorbed in expenses. In surance of all kinds grows apace, but its use would be wider and its benefits greater if the "tare and tret" of doing the business could be reduced. It seems a reasonable hope, now that the experimental stages are passed, that this may be done. It is true that some portion of the expenses of in surance companies give to the insured valuable services, such as inspection of houses for fire prevention, medical examina tion, and home nursing to reduce illness and conserve life and these services might be further extended. In the case of all kinds of insurance as yet a large expense for agents has been necessary to educate men to see the value of insur ance and to purchase it, as well as for many other competi tive expenses. It has been found that much of this expense can be saved by insurance in groups (for all employees in an establishment), by compulsory insurance (as of all work ingmen), and by central state administration serving to reg ularlize and unify the organizations. An important problem to be solved in the future is to find methods of insurance equal to or exceeding in their efficiency those now in use, but at much more moderate cost. It is not improbable that uni versal cooperative state insurance, both of life and property, will be worked out. This important question will be further considered in connection with "social insurance" as a mea sure to benefit the working classes.
8 See ch. 12 I 8. REFERENCES.
Dawson, M. M., The business of life insurance. New York. A. S. Barnes & Co. 1905.
Gephart, W. F., Principles of insurance, vol. I, Life. New York. Macmillan. 1917.