Assessment insurance is sold by business companies organized for profit, by fraternal orders, and by various types of mutual organizations.  The business companies have had a dismal history of hardship to surviving members and of eventual failure.  They are disappearing under the influence of hostile legislation resulting from a better popular knowledge of insurance principles.  The fraternal orders combine insurance with other objects of a benevolent and social character.  With good management, a favorable death rate, and very low expenses, some of them have provided protection at very low rates for many years.  Others have failed with disappointment and disaster to the older members.  Still others are struggling with difficulties that presage dissolution.  Many now have some form of reserve accumulations, and some have so improved their methods that they closely resemble reserve companies.  The assets of all the assessment companies are now $1.37 per $100 of insurance in force, while the legal reserve companies have $22.66.  The assessment companies now get 10 per cent of their total incomes from their funded investments, as against 24 per cent for the old-line companies.  Even with the favorable conditions under which the fraternal orders conduct their insurance business they are doomed to failure unless they adopt rates and policies based upon adequate reserve accumulations.  Many thousands of present members are paying for insurance at rates which will not suffice to meet the future losses.  The assessment plan fails to eliminate the one great risk, that of leaving the survivors without insurance in advancing years.

Sec. 10. # The reserve plan.# The reserve plan, if honestly administered, gives complete protection against the difficulties just indicated.  The essential purpose of the reserve plan is to collect during the earlier years of the insurance policy when the mortality is less, a sum larger than is needed to meet the current losses.  This sum, the reserve, is kept invested and accumulating an income, sufficient to offset the increase in losses as years advance.  In reserve insurance, therefore, the premium never increases from year to year, altho it may be so arranged as to diminish or to cease entirely sometime within the term for which the insurance continues.

The premium must always be fixed in advance.  The calculations for determining the premiums on different kinds of insurance policies are many and complex, but all conform to a few general principles.  The three factors assumed are an average mortality table, a rate of interest (or yield on investments), and an expense rate in proportion to the premiums or outstanding insurance.  Insurance on the reserve plan is often called “scientific insurance” because, upon the basis of these assumptions resulting from experience, it makes exact mathematical calculations of the premiums and reserves needed for insurance of any particular kind in respect to age of insured, number of payments, method of paying the beneficiary, and any other conditions.  The premium thus fixed is, however, only a maximum, and usually is reduced as the result of conditions more favorable than those assumed.