compensation payment or a disastrous damage suit comes too soon, it may find the self-insurance fund with insufficient accumulation to meet the consequences. Against such a contingency insurance provides an intelligent and common-sense hedge. Instead of immediately assuming all the risk of selfinsurance it would be wiser for many business men to assume this risk gradually, combining one-tenth self-insurance with nine-tenths insurance the first year, one-fifth self-insurance with four-fifths insurance the second year, and so on until the object they have in mind is fully attained. Thus in a sense insurance may be regarded as prerequisite or essential to saving, in order to guard against uncertain results of the latter.

7. Insurance as an investment.-Some forms of insurance combine with the insurance feature an investment element. This is only incidental to the protection element and yet serves a useful purpose. In life insurance particularly, its importance has been emphasized. Under the level-premium plan, a man pays in the early years of the policy a premium more than sufficient to carry the risk and this saving goes to make up for the deficiency in the annual premium in the latter years of the policy when the mortality rate has greatly increased. The extra amounts collected in the early years are therefore in the nature of savings which earn interest. This saving element exists in some term policies, in all ordinary-life policies to some extent, to a greater extent in the limited-payment and is extended still further in the endowment policy, which purposely combines life insurance and saving. The sums so accumulated by the insurance company earn interest and experience has shown that insurance companies have earned a fairly large rate of interest for the remarkable safety of the investment. In the past twenty-five years it is said that no policy-holder has lost any of the savings he had in any large and well-established legal reserve life insurance company.

In other forms of insurance the saving feature is less prominent. By straining the analogy somewhat we may consider that the amounts put into a self-insurance fund or paid out as premiums are put aside into a fund for a "rainy day"—to take care of losses which are sure to occur to the group as a whole, although each individual member of the group hopes that he will not be the victim.3

See also the fire insurance plan of the "Philadelphia Contributionship," Appendix XXIX.

Insurance companies have further developed this idea of thrift by making it applicable to the proceeds of policies. In order to prevent beneficiaries from squandering the proceeds of a life insurance policy, income policies have been invented, which provide for the payment of the proceeds in instalments. Likewise, the proceeds of the policy may be left with the company for safe keeping, earning meanwhile a reasonable rate of interest. Some companies have sold "gold bond" policies, the proceeds of the policy being a bond with fixed interest periods instead of cash. It should also be noted that the saving element in a life insurance policy has been made little different from the saving plan of a bank, inasmuch as the policy-holder may borrow at any time from the savings fund he has accumulated or may withdraw it entirely in the form of a surrender value.

8. Insurance promotes thrift.-In the illustration of the two thousand men, one thousand of whom made use of insurance, it was assumed that all of those who adopted the savings method possessed the determination to adhere to their plan and that none failed to put away $100 faithfully each year. In actual practice, however, we know that it is difficult to save, and what would appear to be a small assistance is often the difference between success and failure. Life insurance provides certain inducements to save. In the first place, each person receives a notice a short time in advance of the date when his annual premium is due, making it impossible for him to forget the payment and forming the habit of putting away a small sum at regular and determined intervals, an element which has always been insisted upon as essential to the development of thrift. This encouragement of saving undoubtedly results in many persons accumulating sums which they otherwise would never have. Money or time which would otherwise be wasted is utilized for the purpose of meeting these regular payments and this has been said by one writer to bear the same relation to thrift that the utilization of by-products does to manufacturing-much being saved that would otherwise be wasted. In a savings bank, furthermore, a depositor is usually allowed to withdraw his funds upon short notice at any time, so that a resolution to save may be broken without serious reflection. Under the life insurance contract no withdrawal is usually permitted during the first two years of the

contract, and sometimes even after this date a withdrawal charge is made.

9. Insurance as a provision for old age.-Another form of savings must be referred to here. In most cases saving consists of putting away small sums in order to accumulate a large fund, but the term may be equally well applied to the putting away of a large sum in order to insure the payment of a number of small sums in the future. Some persons who are in possession of considerable money have no dependents to protect and their only concern is to make sure that they will themselves be taken care of in their old age. The interest on the sum they possess may not be sufficient for this purpose, and as soon as they begin to draw upon the principal, they reduce their annual income, and have no guarantee that they may not be so unfortunate as to live too long. Such a person may, however, save his principal sum by investing it in the form of an annuity, which guarantees him an annual income as long as he may live. An illustration will make this plain. Suppose a man, age 65, has accumulated $8,000, the interest of which at 6 per cent will provide him with $480 annually, a sum which is insufficient to support him. By using a portion of the principal each year he can increase the sum annually available to $700 or $800, but he runs the danger that the principal will be exhausted and that he will then be left without any income. On the other hand, for $8,000 he may purchase an annuity which will pay him about $900 a year until his death, however late that may occur.

It may be that sometime in the future we will have in the United States a form of insurance which is common in Europe -old age insurance-in which the worker is compelled, if necessary, to lay aside a portion of his earnings in early years to support him in his old age.

10. Community benefits of insurance.-The uses so far enumerated have been individual in character but insurance also performs some services which, while not designed to benefit any particular individual, nevertheless benefit all, through their effect upon the community. Among these public services may be mentioned the following:

a. Fire insurance and other forms of property insurance encourage the individual to look forward to the future by urging him to provide, not merely for the present, but for events which may reasonably be anticipated. Adequate pro

vision for the future distinguishes the civilized from the savage community and marks the difference between stability and instability in business. The principle of providing for future contingencies has long been recognized in corporation finance and its scope is only beginning to be realized in personal affairs and business policy outside of the field of finance. Life insurance goes further and impels a man to provide, not merely for his own lifetime, but even for the period after his death. It thereby greatly increases the sense of responsibility and strengthens family connections. Similarly, credit insurance is fundamentally an attempt to stabilize business conditions and title insurance performs the same function for property rights.

b. Life insurance, workmen's compensation insurance and accident and health insurance relieve the community of much of the expense which would otherwise be incurred for the care of dependents left by the improvident. They encourage persons not to depend upon the charity of the state, but rather upon their own efforts to prevent poverty and distress and thus strengthen character. So great a social factor has this been considered abroad that systems of social insurance have been built up, enforced by and in some instances supported by the State. Fires, defalcations, failures, explosions, tornadoes and other calamities have likewise often tended in the past to impoverish families which would have been relieved of the financial shock if adequate insurance had been maintained.

c. All forms of insurance, by lessening the number of persons who are rendered destitute through such happenings, tend to maintain the standard of living. They reduce the number of unfortunate examples of destitution and misery which operate to lower the ideals and standards of conduct of others who are brought in contact with them.

d. A well-organized system of insurance tends to distribute equitably the cost of accidental events which would otherwise be paid in a haphazard manner. For example, the cost of fire insurance is now reflected fairly accurately in rents; but in the absence of a system of insurance some tenants might pay excessive sums while others did not pay their fair share of the fire losses. Credit losses, instead of being cared for by a small and regular addition to the selling price, in the absence of insurance are met by an assessment depending on circumstances, naturally resulting in an addition sometimes deficient and sometimes excessive.

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e. All forms of insurance, if properly conducted, tend to reduce the extent of the evils they are designed to alleviate. The strongest argument for the reduction of fire losses, for example, is the pecuniary argument that smaller losses will make possible smaller premiums. The cooperative effort, which is primarily intended to collect and disburse insurance funds, tends to be applied in time to the reduction of losses. Thus, fire insurance inspections, life insurance medical and nursing services, oversight by bonding companies of employees, inspection of automobiles and of factories, are expedients introduced to prevent fires, reduce the death rate, prevent sickness, eliminate theft and defalcation, prevent automobile accidents and reduce the number and severity of industrial accidents. These efforts were fostered and supported by insur

ance.

f. Insurance accumulates, from the small deposits of many persons, a large fund which may be invested and used in the development of American enterprise. In other words, vast funds are made available as capital which otherwise would never be brought together in one place. The reserves of life, fire, compensation and casualty insurance companies represent the contributions of millions, each contribution being insignificant in itself, but in total amounting to a sum equal to the national debt of the United States in 1918. This vast sum is distributed among the securities of enterprises of all kinds.

g. Insurance has enabled small business enterprises to com- pete with large corporations upon more equal terms. As previously remarked, the element of risk is a highly important one in any business. A large company can afford to take some risk. If one of its forty buildings burns, the loss is not so seri ous; should the only building of a small competitor be destroyed, all is lost. The same is true of many other kinds of assets. The small business cannot afford to take much risk. A large business in the absence of insurance is able to maintain a self-insurance fund, because its resources are great enough and its risks sufficiently diversified and distributed to make such a fund of some value, but to a small business this is a pure gamble. Insurance has therefore been of special benefit to the small manufacturer and merchant.

The several propsitions contained in this chapter may then be summarized as follows: