INSURANCE, the act of insuring or assuring against damage or loss; a con tract by which a company, in considera tion of a sum of money paid, technically called a premium, becomes bound to in demnify the insured or his representa tives against loss by certain risks, as fire, shipwreck, etc.
While every known form of insurance is carried on in the United States, there is no general law governing the conduct of the business. Till about 1E56, the various companies in each branch of the business carried on their operations ac cording to the principles that prevailed in England, with such modifications as American business methods and inter ests made necessary. Massachusetts was the first State to insist upon an official supervision of all insurance business transacted within its limits by companies chartered there and elsewhere. The es tablishment of a State insurance depart ment there, in which was vested the en tire control of all insurance business in the State, and the enactment of special laws for the management of the com panies, placed the business on a firmer footing than it previously had. In 1859 New York followed the example of Mas sachusetts, and since then nearly every other State has created an insurance department.
Life Insurance.— In the United States the companies are distinguished as stock or proprietary, mutual, and mixed as to organization, and level premium, natural premium, and assessment as to system of operation. ..A stock company is one organized on the cash capital subscribed by its projectors. The capital is held as a pledge for the payment of policy hold ers' claims while premiums are accumu lating., and as the liability is limited to the aggregate amount of policies in force it is necessary to provide only a sum sufficient to meet these liabilities. No policy holder has any voice in the man agement of the company, nor any share in the profits of its business. A mutual company is one constituted by persons who are themselves insured, who corpo rately insure others, and who as policy holders control the management by elect ing directors from among themselves, and receive in various forms the annual profits. As these companies are organ ized without any capital, it is necessary that they should accumulate more quickly than stock companies a fund to meet liabilities; hence they charge premium rates in excess of the amount that will really effect the insurance, viz., a reserve element, a mortality element (together constituting the net premium), and the " loading " or expense element, which is an addition to the real cost of insurance to provide for operating expenses and an occasional excess of mortuary loss.
A form of insurance that has attained wide popularity in the United States is known as co-operative. Among the first if not the very first organization to adopt this form was the order of Free-masonry. The rate of admission was graded by age, assessments of $1 or $1.10 were levied whenever a death occurred, and the bene ficiary of a member received $1 for eacb member at the time of his death. The order of Odd Fellows then organized sim ilar associations; and some still follow the above plan, while others classify their members by age periods, vary rates of admission and assessment by classes (ac cording to age), and pay different amounts to members of each class. The expense fund, always comparatively small, is made up from the admission fees, the excess of assessment payments, lapses, and — where sufficient funds have accumulated for investment — in terest. There are also a number of acci
dent and casualty companies which in sure against both disability and death from accidents, paying a stipulated sum weekly for a disability resulting from an accident, and various sums for a death from such cause.
Returning to what are popularly known as the " old line " companies, a regular whole-life policy, payable at the death of the insured only, may be ob tained (1) by the payment of a net single premium, or all the premiums that the mortality tables show that the in sured would be likely to pay, in one sum; (2) by equal annual payments through life; (3) by five annual payments (the first) ; (4) by 10 annual payments; (5) by 15 annual payments; and (6) by 20 annual payments. If issued on the mu tual plan, cash dividends will be paid every year during the life of the in sured; if on the stock plan, no dividends. The mutual plan carries the highest rate of premium. A term policy is one given for a specified number of years and amount, and is paid only when death oc curs within the specified term. It is in some respects similar to an endowment policy, but in others radically different. An endowment policy is paid at death during the term, or to the insured if liv ing at the end of the term. A joint-life policy is payable on the death of one of two or more persons on whose joint lives the insurance was made. A simple an nuity policy provides that in considera tion of the payment at one time of a specified gross sum, the company will pay to the annuitant a stipulated sum annually, either for a stated term or during life; and a survivorship annuity policy, sometimes taken by one partner for another, by a debtor for a creditor, and otherwise for a business security, guarantees the payment of a stated sum to the person named by the person taking the policy during the period in which the .nominee survives the insured. A tontine policy is similar in form to the ordinary life, limited payment life, or endowment policy. No dividend is al lowed or paid till the insured has sur vived the completion of the tontine pe riod, and then only when the policy has been kept alive by premium payments, and the policy is not regarded as possess ing a surrender value in a paid-up policy or otherwise previous to the completion of the tontine period. If the insured die before the completion of the tontine pe riod (or term of years specified in the policy), the beneficiary will receive only the sum indicated in the policy; but if the insured survive the period he will share with all other members of his class in the equitable division of the accumulated dividends, and may then surrender his policy for a cash payment by the com pany, or convert it into any other desired form of insurance. A semi-tontine policy differs from a pure tontine in this respect: It contains the same stipula tion on the non-payment of dividends, but is treated as ordinary policies in re gard to providing a paid-up policy in case of a lapse, or failure to pay the pre miums. The renewable term life and quarterly renewable term life policies have been outlined above in connection with Sheppard Homans's work.