Sec. 14. #Different features of policies.# The premiums thus far discussed are “net premiums” estimated as just sufficient to meet the actual payments required by the contracts in the policies.  To provide for the expenses of management an addition is made to the net premium called the “loading.”  The entire premium is called the “gross premium.”

Reserve insurance is still carried on by a few stock companies, but of late some stock companies have been transformed into mutual companies, which are the prevailing type.  The mutual company legally belongs to the policyholders.  The gross premiums in reserve insurance are, for the purpose of safety, fixed at a figure larger than the expected cost of the insurance, and normally the earnings from interest are higher, the mortality is lower, and expenses are less than those on which the calculation of rates is based.  From the excess of income resulting, the company sets aside a surplus and then divides the rest among the policyholders.  These returns, virtually but the refund of excess premiums, are called “dividends” (a somewhat misleading term, not to be confused with dividends on corporate stock).  The policies that receive dividends are called “participating” and are said to participate in the earnings.  Formerly the majority of policies paid “deferred” dividends after 5, 10, or 20 years, according to various tontine and semi-tontine plans, the survivors to these periods receiving their dividends plus those of the other policyholders who had died or had withdrawn from the company.  This form of payment having been found objectionable, it was made illegal in New York and other states, and in most cases dividends are now paid annually.  The stock company, organized for profit, frequently charges lower premiums for “non-participating” policies, and then retains such profits as may result from keeping expenses below receipts.

The most popular policies are term policies (usually for 5, 10, 15, or 20 years); ordinary life policies with annual premiums; limited payment life policies (the policy payable at death, with premiums fully paid up after 10, 15, or 20 years); and endowment policies (the face of the policy payable after 10, 15, or 20 years if the insured is still living).  An endowment policy must be understood to be a regular term policy of insurance for the specified number of years, plus a plan of regular annual savings, which at compound interest, accumulate to the face of the policy.  Many persons are attracted to endowment insurance by the oft expressed thought that “you don’t have to die to beat it.”  But this is a mistaken thought.  For the premium in endowment insurance is much higher than that for life insurance alone during the same period, so that the endowment is merely a pretty convenient but somewhat costly plan of saving, hitched on to an insurance policy, with which “actuarially,” it has no essential connection.  In “scientific” insurance the insured pays its full actuarial cost for each additional