Insurable interest

“ Both in investment of savings and in life-insurance, one should make sure that the institution or organization to which he intrusts his money is on a sound business basis. All speculative schemes should be strictly avoided. Any company or form of investment that offers to give back more than you put into it, plus a fair rate of interest on the money, is not a fit place for a man to trust the savings on which the future of himself and his family depends. Security, absolute security, not profits and dividends, is what one should demand of the institution to which he trusts his savings. ”

“ Of course there is a certain amount of loading in the premiums he pays, but for the purposes of our illustration, that need not be considered. In this plan, the policy holder is really insuring himself, and when he dies his beneficiary, or estate, simply receives back the money he has paid in. The fact that there are so many life insurance companies and that they have become so wealthy and powerful, illustrates the power of interest, especially when it is compounded. ”

“ Therefore, in addition to the ruling rate of interest on capital, his profits must cover the cost of insurance on the capital risked--that is, there must be a prospect of gains large enough in case the venture succeeded to cover the risk of loss of capital in case of failure. ”

“ The basis of life insurance is security. A policy-holder pays his premium to enable the corporation accepting it to make good its contract with him when death or time matures it. The vast sums in the possession of the three great companies are accumulated to safeguard their policy-holders, and should be invested only in securities of tried and solid worth, which will bring in no more nor less than the going rate of interest. ”

“ He’s insured against employers’ liability. He’s insured against war. He’s insured against loss of business profits. The interest on his mortgage securities is insured. His wretched little automobile is insured. ”

“ Thus, they are always, so to speak, comforting themselves for the enforced payment of the insurance of hard work and poor fare in this life by the assurance of paid-up capital with interest, in the next! Poor, hard-worked mothers of the slums! ”

“ Insurance value—and I should have done better by so defining it—is the present value, discounting by the assumed rates both of interest and mortality, of which the policy may be expected to contribute toward the payment of death-claims, including its own, so far as that, when it occurs, shall not be self-insured. ”

“ If we speak of "insurance value" as being actually contained in the single premium (net) , then the balance thereof is less than the "self-insurance" or reserve. We have no technical name for that balance. Prof. Bartlett calls it (see "Politics and Mysteries," page 73) , the fund which "works at compound interest till it amounts to the sum assured." ”

“ The insurance company invests and reinvests the premiums, and the total of these, it is estimated, will meet the expenses and the amount of the policy at the time of its calculated expiration.
AS AN INVESTMENT If the young man in question had the money, he would find it to his advantage to buy a paid up policy, that is one on which no further premiums would be required.
But, having the money for a paid up policy, could not the young man, without any expense for clerk hire or rent, invest it, and reinvest it with the interest, as long as he lived, and thus make by insuring himself? ”

“ But, however instructive these details, it may be well, to avoid confusion, to sum up the whole process in the statement that the annual premium is a device to collect a larger amount than the death-rate in the earlier years of insurance, and to use these over-payments, improved at compound interest, to meet the deficiencies which arise in later years. The premium and reserve are so nicely adjusted that they are strictly equitable for the living as well as the dying at every year of life. ”

“ But if it invests the premiums with good judgment, it will make more than the interest rate required. Its premium prices, for example, may be based upon a three per cent, investment rate; three per cent, that is, is all it must earn to pay obligations. But by carefully making investments it may actually earn four or five or even six. That is, it earns one, two, or three per cent, more than it needs. ”

“ We have now touched upon most of the distinctive features of life insurance that interest the general reader, and but little remains to be said of the general management. It has been shown that next in importance to the collection of premiums is the accumulation of a reserve, which must earn at least the minimum rate of interest assumed as the basis of calculation. This is no easy task in the present condition of the money market, and exceptional skill, prudence, and forethought, are required to secure safe and profitable investments. ”

“ Let us hope our moral principles are not yet in that stage of degeneracy, and that in instituting the system of finance to be hereafter pursued, we shall adopt the only safe, the only lawful and honest one, of borrowing on such short terms of reimbursement of interest and principal as will fall within the accomplishment of our own lives. ”

“ But while under the individual system everybody charged for the risk of loss, the losses in reality fell on only a part, and so the rest got something for nothing. When insurance companies were organized to distribute part of the risks, making those who did not lose, contribute to make up the loss of those who did, the risks of all were diminished, and the profit and interest charges on that account reduced. ”

“ In admitting that the interest of money is a legitimate thing, is one obliged also to admit that the money-lender has a right to fix the rate of interest as high as he wishes? Beyond a certain limit, will not the interest become what we call usury? ”

“ That they should be willing, like good souls, to sacrifice themselves in the interest of the workingmen, and establish their institutions of insurance without issuing any shares, I have never believed, and it would be difficult to convince me of it. ”

“ You can insure your own life, or your wife's, or your children's or anybody else's, in whose existence you may have a beneficial interest, and there are a hundred others ready to receive the premiums. ”

“ The rate of interest, which the capitalist will demand, will depend upon a variety of circumstances, and especially upon the risk of loss attendant upon the loan-in other words, upon the character of the security offered by the borrower for the payment of the loan. ”

“ And capital having the power of bringing an unearned income as long as money is thus blessed, I still hold that justice is not attained until the gross interest is reduced to the rate of risk and cost of making loans, the cost of making the tokens being defrayed by public contributions. ”

“ And it may be laid down as a universal rule that a government which attempts more than it ought will perform less. A lawgiver who, in order to protect distressed borrowers, limits the rate of interest, either makes it impossible for the objects of his care to borrow at all, or places them at the mercy of the worst class of usurers. ”

“ Next, my Remedy will benefit that great middle class whose savings go to make up the billions in the savings-banks, national banks, trust and insurance companies, which are used by the "System" to secure for themselves a hundred, a thousand, and ten thousand per cent. interest on their capital, while the owners of these billions must be content with two and a half to four per cent. per annum ”

“ The principle involved is simply that of insurance, founded on the undoubted fact that want is a greater evil than wealth, beyond a simple competence, is a benefit; and that, consequently, where the income is either terminable or uncertain, it is wise, after providing the necessaries of life, to employ at least a part of the remainder in purchasing security for the future. ”

“ They shall convert my said residue of property into money, which they shall then invest in safe securities; the capital thus secured shall constitute a fund, the interest accruing from which shall be annually awarded in prizes to those persons who shall have contributed most materially to benefit mankind during the year immediately preceding. ”

“ Exactly in the same way, nearly every country has taken steps to prevent usury and keep down the interest of money; and the invariable effect has been to increase usury and raise the interest of money. ”

“ Policy, in which the amount assured is payable when the party attains a certain age, or at death, should he die before reaching that age. This policy is rapidly gaining favor, as it provides for the man himself in old age, or for his family in case of his death. It is also fast becoming a favorite form of investment. We can show instances where the policy-holders have received a surplus above all they have paid to the company, with compound interest at six per cent, and no charge whatever for expenses or cost of insurance meanwhile. ”

“ 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. ”

“ He shall see, too, that our first care has been your sister's interests. Six-sixteenths of the profits for fifty years are to be hers; three each we reserve for ourselves; the remaining four will form a reserve fund for casualties, a capital for future development, and a sum at interest to pay superannuations, with some other objects that you will find roughly jotted down here, for which, however, they will amply suffice. ”

“ We insure our lives for the same reason that we insure our houses and our ships. All three things have money value; all stand momentarily in danger of destruction; and all are insured for the purpose of recouping ourselves and our dependents for their loss. ”

“ Life insurance was regarded as an act of interference with the consequences of God's will. Houses for lending money on interest and on pledges, that is, banking and pawnbroking establishments, were bitterly denounced, and especially was indignation excited against the taking of high rates of interest, which was stigmatized as usury—a feeling existing in some backward communities up to the present day. ”

“ The legal rate of interest is twelve per cent., but no money, as a general rule, can be obtained on such easy terms. Twenty-four per cent., with ample security, is easily obtained for a loan, and sometimes as much as sixty per cent, a year is extorted by usurers in contributions of five per cent, a month. ”

“ This view would satisfactorily account for the cases in which the insured aliens the interest originally insured, but retains an interest in the property insured; as, for instance, where he sells his land, at the same time retaining a mortgage to secure the purchase-money. ”

“ But in the modern mind, principal, and interest within a limited rate, have so grown together, that we hardly understand how it can ever have been pronounced unworthy of an honorable citizen to lend money on interest. ”

“ The recognized system of lending upon approved security for a fair and moderate rate of interest removes the irksome, galling sense of obligation, and enables any man to borrow with a feeling that if he receives an obligation he is also conferring one; that if he makes ten per cent, by trading, or a good stipend by his degree, he will divide his profits fairly with the man who served him, and that he110 is helping him in his turn to keep his money together for the sake of his children after him. ”

“ Through the seas and shallows of investment flow great tides and depressions, on which the big fortunes ride to harbour while the little accumulations, capsized and swamped, quiver down to the bottom. It becomes more and more true that the small man saves his money for the rich man’s pocket. Only by drastic State intervention is a certain measure of safety secured for insurance, and in America recently we have had the spectacle of the people’s insurance-money used as a till by the rich financiers. ”

“ Opportunities for the investment of small savings at low interest are not lacking, but [Pg 376] the great fortunes overtower the little ones, securing the great profits and great political and economic power. ”

“ It is familiar knowledge that the source of dividend accumulations upon insurance policies is interest upon investments of the company and savings effected from estimated future expenses and from death payments covered by premiums, with appropriate 'loadings' to give a margin of safety, which the policyholders have paid. ”

“ But the results in the social economy, the substitution of reasonable foresight and confidence for apprehension and the sense of hazard, the large elimination of chance from business and conduct, have a supreme value. The direct contribution of insurance to civilization is made, not in visible wealth, but in the intangible and immeasurable forces of character on which civilization itself is founded. ”

“ But in such cases there is a regular rate of interest fixed by law as payment for the use of the money borrowed. You can not risk any other than the legal rate of interest, if you do you are taking unwarranted risks, and subjecting yourself to the yoke of a loan shark, out of whose clutches you can never emerge without tremendous sacrifices, often ruin. ”

“ Interest is "a Reward for forbearing the use of your own Money for a Term of Time agreed upon, whatever need yourself may have of it in the meanwhile"; and laws limiting interest are as ill-judged as those limiting the exportation of money or the rate of exchange, "for Interest always carrieth with it an Ensurance praemium which is very casual, besides that of Forbearance." ”