Life insurance is that form of insurance in which partial indemnity is provided for survivors against the financial loss incurred by the death of the insured.  Usually the insured is the breadwinner of the family and the beneficiary is a member of his family, but in an increasing number of cases the beneficiary is the surviving business partner, a creditor, or a business corporation with an insurable interest in the life of one of its employees.

Life insurance has been much used by persons mainly dependent on labor incomes[4] rather than on incomes from capital, by those receiving salaries, professional fees, and by active business men.  It has of late been extended rapidly, as “industrial insurance” to wage earners, in policies never exceeding $1000, but averaging very much less, and often being for no more than enough to pay funeral expenses.  The premiums on such policies are usually collected weekly and by agents making personal visits.  The cost to the insured is, therefore, necessarily very high in proportion to the amount of insurance.

Sec. 9. #Assessment plan.# Life insurance plans may be distinguished, with reference to the time and method of collecting the premiums, as assessment and reserve insurance.

In the simple form of assessment insurance originally the losses were paid by contributions taken after the losses occurred, each member paying an equal share without regard to age.  In a slightly improved plan the assessments are made at the beginning of the year, based upon the expected mortality for the year.  The sum just sufficient for this purpose (omitting expenses) is called the natural premium.  The cost of such insurance is closely related to the average age of the members.  The rates are very low in a new organization with a membership of young men; but each year the average age, and therefore the mortality of the membership, rises and the annual assessments must be increased.  By constant additions of young members, this rise of cost may be retarded.  But when these members grow older, a still larger addition of young members is required to keep down the average, and the mathematically inevitable result is an increasing rate of assessment.  This keeps young men from entering, and finally results in failure or in some form of “reorganization” that drives out the older members.  The assessment plan carries with it the seeds of its own decay.

To meet these difficulties in part, various modifications of the flat-rate assessment plan are employed, such as classification by age at entry, so that each member pays a flat-rate according to age at entry; or large initiation fees at entry which form a temporary “reserve” to offset increasing mortality in late years.  Finally, the policies may be issued on the natural premium plan, by which the members of each age class pay exactly what the insurance costs for the year.  Under this plan the company will remain solvent, but with this and all the other expedients the surviving members are forced to drop the insurance in later years.