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A reinsurance reserve fund

some other insurance company. is usually set aside for the purpose. There are certain insurance companies whose business is wholly restricted to reinsurance. Reinsurance distributes the danger of loss over a large territory, and may be the means of safeguarding the financial standing of an insurance company at a period when the actual losses far exceed the average losses upon which the calculation of premiums has been made.

Kinds of Insurance.

Insurance may be divided according to the object affected into Personal Insurance and Property Insurance.

(1) Personal Insurance. Personal insurance embraces:

Life Insurance, by which the payment of a certain amount is assured to a specified person upon the death of the person insured, or after the lapse of a specified time.

Accident Insurance, by which the payment of a certain sum is assured when an accident befalls the insured.

Health Insurance, by which a certain sum is assured to a person during sickness.

Fidelity and Surety Insurance, which insures against dishonesty on the part of employees and public officials, and against the failure of executors and administrators in the performance of their duties.

(2) Property Insurance. - Property insurance embraces the following kinds:

Fire Insurance, against fire.

Marine Insurance, against losses at sea.

Transit Insurance, against loss of or damage to merchandise during transportation.

Stock Insurance, against loss of live stock.

Accident Insurance, which includes a great variety of kinds, insuring against accidents from hail, tornado, elevators, automobiles, machinery, etc.; against accidents that may happen to plate glass, boilers, etc.

Credit Insurance, against losses from bad debts to which business men are liable.

Employers' Liability Insurance, against claims for damages made against employers because of accidents suffered by employees.

Mortgage Insurance, which guarantees the validity of mort

gages.

Some of the kinds of insurance mentioned above deserve special notice..

Life Insurance. Life insurance is carried on by joint-stock or mutual companies.

Life insurance may be straight life insurance or it may be term insurance. The former embraces the whole period of a person's life; the latter is limited to a certain definite number of years.

Endowment insurance is a species of insurance by which a person is to receive a specified sum of money, if living at the expiration of a certain number of years.

The premium in life insurance is determined from the Mortality Tables, which show the average number of deaths in a given number of persons of successive ages. These tables are made out usually from actual past experiences.

The premium determined for one year by the calculation of the risk found in the tables less the year's interest is called a natural premium.

In the case of term insurance covering a number of years, the premium is usually fixed at a uniform amount to be paid annually during the period in which the insurance is in force. This is known as the "level" annual premium.

A life policy may be given for a limited number of annual payments of a fixed premium. Such a policy is a limited payment policy, and the annual premium is fixed at a figure high enough to cover the risk of the company.

When a person insured in a mutual company contracts not to participate in the surplus funds of the company and resigns all claim to dividends, his policy is called a non-participating policy, and his premium is fixed at a lower rate.

The premium consists of two parts, the net premium and the

loading. The net premium covers the average risk incurred; the loading is an additional amount intended to cover the possibility of the actual cases exceeding the average cases, but principally to defray the expenses of the insurance company.

Each person must pay his quota of the expenses incurred in the management of the business. These expenses are at times very great, frequently due among other things to the extravagant salaries paid the officers and to the great army of solicitors who are employed by the companies and are paid large commissions. The average amount of the loading in all kinds of life policies is about 30 per cent of the net premium.

An immense amount of life insurance business is written in the course of a year. Thus, in 1911, the total number of new policies issued was 811,964, to the amount of $1,577,846,251. All these policies, however, are not permanent. Many of them cease through lapse. A policy is said to lapse when the policyholder fails to pay a premium when due.

Other policies cease through surrender. A policy is surrendered when the policyholder returns his policy to the company and receives its surrender value.

The number and the amount of policies that cease through lapse and surrender is very large. Thus, for the year ending Jan. 1, 1912, in the New York life insurance companies, the

Number of policies lapsed was 190,307,
Number surrendered was

131,954,

Amount, $325,728,487
Amount, $252,331,184

(Insurance Yearbook, 1912, p. 281.)

Gradually a large amount of money accumulates in the possession of an insurance company, from the premiums paid in, the policies that have lapsed, and the fact that deaths are fewer than estimated from the tables of statistics. This money forms a surplus and a reserve fund, out of which dividends are paid to the stockholders, in joint-stock companies, and to the policyholders, in mutual companies, and provision made for the payment of endowments and terminated policies.

The surplus money of the company is invested in various

ways, so that a large yearly income is received. Investments are made in government bonds, railroad bonds and stocks, and the stocks of various industrial concerns. Income is also derived from loans on mortgages, collateral, and policies. The larger the income derived by the company from these various sources, the lower need be the premiums demanded upon policies, and the higher may be the dividends paid out to the stockholders or policyholders.

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Fire Insurance. Fire insurance companies are organized as joint-stock companies or as mutual companies. A person insured in a joint-stock company pays a definite premium and becomes entitled to indemnity should he suffer a loss by fire. A person insured in a mutual company usually pays a cash premium and is further liable to be assessed a certain amount to cover losses.

Mutual companies are often formed embracing men engaged in some one line of business. In this way mills and factories are insured.

A person or a corporation having a chain of houses or plants distributed over a wide extent of country may find it more economical to organize an insurance fund formed by contributions from all the individual houses or plants, than to pay the large premiums required by insurance companies.

A person who insures usually distributes his insurance among a number of companies. He will thus have stronger guarantee of recovering indemnity for any loss he may sustain.

When a person insured suffers a partial loss by fire he will receive indemnity to the full extent of the loss, if he has insured up to 80 per cent of the value of his property. If he has insured for less than 80 per cent he is considered to be a coinsurer with the company to the extent of the difference between his actual insurance and the 80 per cent. In case of partial loss by fire, he receives from the company but a percentage of indemnity proportional to the amount insured.

Thus, if a man owning property worth $100,000 insures for $80,000, and pays the premium on that amount, and then suf

fers a fire loss to the property to the extent of $10,000, he will recover the full amount, $10,000, from the insurance company. If he insures the property for $40,000, he then, upon a fire loss of $10,000, will recover only $5000. Having insured only to the amount of $40,000, he is supposed to be a coinsurer of his own property to the sum of the other $40,000, and must pay half the indemnity for the loss.

This 80 per cent coinsurance clause was adopted generally by the fire insurance companies in New York, New England, and many of the principal cities in other parts of the country from 1892 to 1899. The clause, however, does not apply to dwellings and their contents.

Fire insurance companies, to-day, have undertaken much in the way of preventive measures, so as to lessen the danger of fire or the loss attendant on fires. They have been able to induce many of the insured to adopt various precautions against fires, and through the fire patrols supported by them, they are able to diminish property loss considerably.

The need of fire insurance may be gathered from the fact that the property loss from fires in the United States amounted, in 1908, to $217,885,850; in 1909, to $188,705,150; in 1910, to $214,003,300; in 1911, to $217,004,575. During twenty-five years (1886-1911), the property loss amounted to over $4,516,000,000. (Cf. Bulletin 418, Department of the Interior, 1910. Cf. Insurance Yearbook, 1912, p. 461.)

The premium in fire insurance depends on the risk that is assumed by the company. The risk depends on the value of the property insured, the time during which the insurance runs, the probability of fire in the class of property insured, and the probable destructiveness of the fire, if it occurs. All these factors will determine the amount of the premium. Preventive measures undertaken spontaneously or at the suggestion of the company insuring will ordinarily lessen the amount of the premium.

The probability of fire occurring in different kinds of property brings about a classification of property. The risk under this

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