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surrender values, etc. It is needless to add that such an ideal can never be fully realized in practice. To base gross premiums or assessments on the lowest possible death rate, a high rate of interest, and the least allowance for expenses of management, and then encounter experience more unfavorable than that which was assumed in estimating premiums, in any one or more of these lines, if continued for a longer or shorter period of time, can result in nothing but failure. To assume too high rate of mortality, too low a rate of interest, and too heavy an expense in administration, makes premiums unnecessarily high, and results in the accumulation of a large surplus. This is what fraternal societies object to; yet, if an error is made, it should certainly be made in this rather than in the opposite direction; and with wise management, under a participating system, a distribution of these accumulated funds will ultimately be of benefit to the policy-holder. With a relatively small number of exceptions, fraternal insurance societies have erred not only in neglecting scientific mortality tables, but also in assuming experiences much too favorable under present social conditions. On the other hand, their aim to provide pure insurance at the lowest possible cost is a laudable one, and, when accepted business methods are pursued, capable of diffusing great benefits among members. The accumulation of an enormous surplus is considered inconsistent with fraternal principles; yet it should be added that the accumulation of no surplus whatever is probably always (except in “natural” plans) inconsistent with safe business principles, because it signifies either that interest, cost of insurance, and loading, as assumed, are exactly realized in practice, in which case the ideal would have been attained; or, which would be disastrous, that experience is more unfavorable than the assumptions on which the business is based. Prudence would dictate that at least a small margin should be allowed for adverse conditions. So much for the question of a surplus.

Somewhat different in nature but of even greater importance is the question of a reserve. The National Fraternal Congress has almost from the very first included this among the subjects for discussion, and the organization of an American Fraternal Congress at Omaha, in October, 1898, making the chief qualification for membership the adoption of a reserve system, is significant in that it shows a well-marked division of opinion among fraternalists on the question of reserves. The National Fraternal Congress has not yet taken steps making it obligatory on the part of its members to adopt a reserve fund; yet, speakers before this body have repeatedly urged the necessity of adopting reserve systems. A number of societies—consistent with the traditional fraternal dislike for old-line terms—have established “safety" or "emergency" funds, which are technically reserve funds. Several prominent fraternalists expressed their approval of both a reserve and a natural” plan before the National Fraternal Congress of 1900, and similar utterances were made before the same congress during earlier years, notably in 1893, 1894 and 1898. An examination of all the proceedings of this congress gives the reader the impression that there is an unmistakable tendency among fraternal insurance societies toward the reserve or natural premium plans, especially the former.

Disregarding several minor considerations, under a reserve plan the premiums are "level," i.e., do not vary in amount during the premium-paying period of the policy. Since the “cost” of insurance—i. e., moneys required to meet current mortality losses—increases with increasing age, it follows that under a level premium system the earlier premiums are greater and the later premium payments less than the cost of insurance for the age represented by the policy holder in question. That part of the level premiums which is in excess of the current cost of insurance is improved with interest and “reserved to counterbalance the deficiencies of later level premiums. In other words, every level premium

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embraces an investment reserve, in addition to other elements which need not be discussed here, with which future losses are met. Under a "natural" premium plan the policy holder—again disregarding loading, etc.-pays just enough to cover the cost of insurance for his age, and no more. Natural premiums are, consequently, low during youth and increase with advancing years, until finally they become practically prohibitive. Assuming that the premiums are payable at the beginning of the year, it is evident that even under the natural system some reserve exists with which to meet losses during the year. This form of reserve may be termed insurance reserve. It is used to meet current losses and is greatest at the very opening of the year, gradually decreasing until at the end of the year it is completely exhausted.

The tables of the Fraternal Congress admit of both the reserve and the natural premium plans. The reserve plan involves the adoption of a level premium table like that given in column 3 of the Comparative Exhibit, and the natural plan is illustrated in the table given below. Both tables of rates are based upon the same mortality tables. The committee on rates of the Fraternal Congress has also prepared other modifications of the natural plan, but this one will suffice for purposes of illustration.

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$ 5 II

$ 45

60 63 67 74 87

$ 75

5 40

5 93

21-25 26–30 31-35 36-40 41-45 46-50 51-55 56-60 61


I 21
I 72
4 73

671 8 14

78 82

89 I 02 I 20 I 51 2 02

10 25

13 82 19 60

I 05 I 36 1 87 3 00

54 OI

2 50

The report of the committee contains the following explanation of this table: “Column 2 gives the annual rates for the natural step-rate to age 61, and a level rate from that age for the balance of life. Column 3, the monthly rates as derived from the annual rates, with allowance for slight loss due to that method of payment. These two columns are the basis for calculating columns 4 and 5.

Column 4 shows a modification of the natural step-rate by means of an accummulation of 15 cents per month, which is used to reduce the level cost from age 61 to $3.00 per month. Column 5, a similar modification, but with an accumulation of 30 cents per month and a level cost from age 61 of $2.50 per month. Under either of these plans all members pay the same rates at the same attained ages. The purpose in view in these tables is to have a plan that requires but little detail in its operation, so as to be readily comprehended by the officers of the local lodges." It will be noticed that an

” "accumulation" is provided for in the rates of columns 4 and 5. This is technically a form of reserve, and in so far as these accumulated funds permit the payment of premiums at advanced ages smaller than the cost of insurance, they perform exactly the same function as those performed by the reserve under the level premium system. The expediency of such an accumulation plan can scarcely be questioned. Fraternal societies have suffered again and again from losses in membership due to an increase in the size and number of assessments, or both. Men seem to object to constantly increasing payments, and in this lies the inherent weakness of the "natural" premium plan. It is thoroughly sound. It cannot fail, but as a method of doing business it has serious faults; and, as long as human nature remains what it has been and still is, the natural plan is open to strong objections. Remembering that out of every thousand fraternal policies ninety-four lapsed during the year 1898, and that in one society nearly 23 per cent dropped out, it is safe to assume that a more general introduction of

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the natural premium plan can only result in a continued high rate of lapses. The present high rate of lapses is unquestionably the result of a variety of causes, but it seems improbable that a system of premiums steadily increasing with the advancing years of the policy holder should do anything to check this movement. From a business point of view the adoption of level rates seems most expedient. Furthermore, since fraternal societies avowedly find their constituencies among persons of limited financial resources, and whose earning capacity sometimes decreases rapidly after middle life has been reached, the introduction of limited payment certificates or policies is worth consideration. Not only does the natural plan with its markedly rising cost of insurance in the higher ages levy a severe tax on the earnings of the small policy holder, but the level premiums even may become too burdensome. Fraternal societies strive to furnish, among other benefits, pure whole life insurance. When this involves life long annual or other periodical payments, the policy holder can see no end except death, to the number of his contributions. This objection holds against all whole life, unlimited payments policies; and consequently all insurance organizations must meet this proposition. It seems desirable that a person's heaviest contributions should fall within the most productive years of his life. Both the experience of fraternal societies with increasing assessments and the composition of their membership point to the desirability of the introduction of some limited payment premium systems.

The insurance of women has not yet been highly developed. In the membership of fraternal societies women have increased very rapidly, as the following figures will show:

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1892 . 1893 1894 1895


1896. 2,429 1897 5,450

1898 9,765 1899.

17,037 24,049 43,158 73,864


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