The first step in our analysis is to determine what sum, payable at the beginning of each year, will accumulate at compound interest to $1,000 in 40 years. As the contract is to extend over so long a period, we assume a conservative rate of interest, say 32 per cent., and find that the required sum is $11.43. In other words $11.43 paid at the beginning of each year, together with 32 per cent. interest upon accumulated funds, will produce $1,000 at the end of 40 years. At the end of 10 years the accumulation will be $139, at the end of 20 years, $334, and at the end of 30 years, $611. If, therefore, the contract were merely one of compound interest an ordinary savings fund contract - the amount payable should death occur within the 40 years, would be simply the accumulation of principal and interest, of which the above three amounts are examples.

Suppose, however, we devise as an accompaniment to the above, an insurance policy under which, should death occur before age 65, the amount payable will be the amount by which the accumulation of the annual payments of $11.43 falls short of $1,000. For example, in the tenth year the accumulation is $139. In the tenth year, therefore, the amount of insurance will be the difference between $1,000 and $139, that is, $861. In the twentieth year it will be $666, in the thirtieth year $389, and in the fortieth year zero. Technically speaking, therefore, the policy that we are devising is one which provides for a decreasing term insurance covering a period of forty years. Performing the actuarial computation on the basis of the American Table of Mortality, with interest at 32 per cent., we find that the uniform annual premium for this policy at age 25 is $6.97.

Therefore, if we weld this insurance contract to the compound interest contract we obtain the policy which we have taken as our illustration · the policy which pays the full $1,000 if the young man of 25 lives to the age of 65, or at his death, if it occurs before age 65. Adding the two premiums $11.43 and $6.97, we obtain $18.40, the exact American 31⁄2 per cent. net premium at age 25 for a forty-year endowment. We have thus, by employing the simple conception of a savings fund and of an insurance policy which pays certain stipulated amounts should death occur within a given period of years, constructed the ordinary endowment policy and computed the premium therefor. We have learned that in paying

an endowment premium, a part of that premium builds up a fund which will mature the policy at the expiration of the endowment period, and another portion of the premium provides for insurance sufficient to make up the amount by which the accumulated fund falls short of the full face of the policy, if death occurs before the fund is complete.

3

4. As a means of accumulating a fund for specific purposes. The special purposes which endowment insurance may be made to serve are exceedingly numerous, as a few illustrations will indicate. Thus, the credit and successful operation of many business firms desiring to negotiate a bond issue may be dependent chiefly upon the life of one man whose unexpected death may so endanger the success of the business as to preclude the redemption of the bonds upon maturity. But this contingency we have seen 3 may be averted if the head of the business insures his life for an amount equal to the bond issue under an endowment policy which will become payable at the same time that the bonds mature. In the event of death the firm receives the face of the policy and may either redeem the bonds if that is possible and desirable, or may set aside such an amount of the policy proceeds as will, with interest, amount to the face of the bond issue at the time of maturity and use the balance for the development of the business. In case of survival the endowment policy will have resulted in the accumulation of a sinking fund year by year which will be just sufficient to redeem the bonds. The same principle might also be applied to the liquidation of a mortgage on a home. Furthermore, endowment insurance may be used in various ways by an employer as a means of binding his employees to himself and thus increasing the efficiency and loyalty of his working force. We have also seen that endowment insurance lends itself admirably to the accumulation of a fund for the benefit of such institutions as colleges, churches, hospitals, etc.5

& Pages 38 to 39 of this volume. 4 Pages 39 to 40 of this volume. 5 Pages 36 to 39 of this volume.

But in addition to such business uses, endowment policies may often serve some special family purpose, especially as regards the making of proper and certain provision for starting children in life. It is to accomplish this purpose in the most convenient manner for parents or guardians that companies issue the various forms of "children's endowments" already enumerated. By means of such policies small savings, which would otherwise probably be wasted, may be accumulated into a fund to be used for educational purposes, or to start a son in business, or to provide a daughter with a dowry in case of marriage.

BIBLIOGRAPHY

DAWSON, MILES M., "The Business of Life Insurance." Life Insurance as an Investment, chap. 23, New York, 1906. LINTON, M. ALBERT, "The Endowment Policy." An address delivered at the Fourth Annual Convention of General Agents of the Provident Life and Trust Company, January, 1915.

CHAPTER IX

INSTALLMENT POLICIES

Any of the usual plans of insurance may assume the form of a so-called installment policy, the installment feature merely providing that the proceeds of the policy at death or on maturity as an endowment shall be paid in a series of installments, annually, semi-annually, quarterly or monthly, instead of in one lump sum. To illustrate, a whole-life policy may stipulate that in the event of the insured's death its face value of $10,000 shall be payable in ten annual installments of $1,000 each, or the arrangement may be for fifteen payments of $666.67, twenty payments of $500, twenty-five payments of $400, etc. Or there may be a further stipulation to the effect that after the company has paid $1,000 at the beginning of each year for ten years if the beneficiary be still alive, the same annual payments shall be continued for that amount throughout the beneficiary's lifetime. Numerous special arrangements, however, can be made to suit almost any set of conditions which the insured may have in mind when considering the purchase of such a policy.

The Fundamental Purpose of Installment Insurance.The primary object of making an insurance policy payable in installments is to safeguard the beneficiary against the loss of the proceeds. As has been said, the installment plan serves the purpose of "insuring one's insurance." Few beneficiaries under life-insurance policies, and this is especially true of women, possess the necessary business experience so to invest and manage a large sum of money as to yield a constant and adequate income. Very frequently, too, the sudden receipt of a large lump sum payment means little more to the beneficiary than abundance of money for unnecessary

expenditures with the result that the present is thoughtlessly made the period of luxurious living at the risk of experiencing actual want in the future. For these reasons the payment of a policy in a single sum is apt to defeat the very purpose for which the insurance was originally taken, namely, the absolute protection of the beneficiary. Payment in installments, on the contrary, safeguards the beneficiary against the loss of insurance protection by extravagance, bad advice or poor investment.

The underlying purpose of life insurance is the protection of the family, and where a wife, children, or other dependents are named as beneficiaries, it is fundamentally important that the real purpose of the policy, namely, their protection, should be absolutely secured by properly safeguarding the proceeds of the policy upon its maturity. It is stated on good authority that about sixty per cent. of the insurance funds left to beneficiaries is lost by them through bad investment or needless expediture within six years following the death of the insured. This experience is also true of other funds left to the beneficiary. On every hand we can point to examples illustrating how easily and frequently the competence which a husband or father has provided through saving or insurance is lost or foolishly spent by the heir or beneficiary. Modern "income policies," especially where the circumstances justify the use of the continuous income feature, are a guarantee, as we shall see, against such a calamitous contingency.

Ordinary Installment Policies. Having stated the general purpose of installment insurance, we may next examine the several methods of applying the principle in actual practice. One plan, as already noted, consists in paying the proceeds of a $1,000 policy in a definite number of installments, such as ten installments of $100 each, fifteen of $66.67, twenty of $50, etc. The advantage of this plan, as compared with an ordinary life policy payable in one sum, is twofold. Not only does the policy spread the payments over a number of years and thus protect the beneficiary against the loss of the