Insurance fund

“ The 'Flexible Fund' program completely reverses the role of the insurer during the accumulation period. Instead of promising to the policyholder an accumulation to a fixed amount of savings at interest, the insurer promises to serve as an investment agency and allow the policyholder to share in its investment experience. The insurer is obligated to produce no more than the guaranteed minimum at maturity, and this amount is substantially less than that guaranteed by the same premiums in a conventional deferred annuity contract. ”

“ Above all, unless all its 1,000 members join spontaneously, it must have a lively force of insinuating gentlemen to persuade them in—that is, life insurance agents. All these things, especially the agency force, cost money. For want of a better system the association clumsily adds to every premium a certain annual sum to provide a special fund to meet these expenses. ”

“ The decision proceeds upon the ground that the insurance business is to be distinguished from ordinary private business; that an insurance company, in effect, is an instrumentality which gathers funds upon the basis of equality of risk from a great number of persons-sufficiently large in number to cause the element of chance to step out and the law of averages to step in as the controlling factor-and holds the numerous amounts so collected as a general fund to be paid out to those who shall suffer losses. Insurance companies do not sell commodities ”

“ Men simply will not pay these largely increased premiums in the later years; consequently they retire and the assessment schemes collapse.
Reserves: Advance Payments for Insurance The association thus finally decides that each member shall pay for his $1000 insurance by contributing $24 to the common fund each year as long as he lives. It therefore collects in advance from its 1,000 members $24,000 the first year. It promptly invests this at three per cent, thus increasing it in one year to $24,720. It pays out this year only $9,000 to the beneficiaries of its nine deceased members. ”

“ The principal business of the company was employers' liability, accident, and workmen's compensation insurance, and it may be that considering certain state statutes, practice and general understanding, the term 'reserve fund' when used relative to the affairs of such a company should be given broader significance than when it refers only to fire and marine insurance. ”

“ All the remaining surplus is distributed annually to the policy-holders, beginning the first year and continuing every year while the insurance is in force.
"The accounts are kept by the commissioner of insurance and audited as the accounts of other state officers. Valuations and reports are required the same as from life insurance companies. The bonds of the state treasurer, the commissioner of insurance, of all county, city, village, and town treasurers, and of every state depository, must include a liability for all premiums and other money received for the life fund. ”

“ In the calculation of the general reserve fund at the end of any calendar year, the company and the insurance department of the state of New York make the computation by deducting from the value of the contractual benefits under each policy the then value of all future premiums under the policy. The general reserve fund of the plaintiff stated in its annual statement is thus the reserve computed by deducting the value of all future premiums from the valuation of all policy obligations. ”

“ One mutual employer's liability insurance company is already doing business and others are about to be organized. A committee of the State Bankers' Association is at work formulating a plan for the organization of a bankers' mutual insurance company for the protection of depositors. Provision has been made for the granting of life insurance and annuities by the state in the state life fund on an absolutely safe plan of collecting a sufficient advance premium and returning the savings. ”

“ The insurance phase of this company is set apart from the fraternal phase after election to membership, even though payment of assessments levied for insurance purposes is made compulsory. The provisions of its constitution show that insurance terms and conditions are precisely like those of non-fraternal companies. Insurance funds are administered on a business basis, and they cannot be used for fraternal purposes. In short, the insurance program and activities reveal that this is an insurance company, run like other insurance companies. ”

“ In an insurance community in which resources have been pooled for the purpose of life and property insurance against various kinds of risk or loss, insurees who pool resources to insure themselves against the same or related kinds of risk or loss shall form separate risk communities and shall pool resources in separate insurance funds covering these losses. ”

“ But, on the contrary, when the dividends have been anticipated, as in the note system, by giving a note for part of the premium, the policy-holder insuring in this way, although he may at first receive a larger policy than he has the ability to pay for in cash, may lose the chief benefit of life insurance. For should he become unable, either by age, disease, or loss of property, to continue the payment of his premiums, his policy must lapse, because there is no accumulation of profits to his credit on which it can be continued. ”

“ In a State that establishes its own Exchange, these three reforms work together to expand insurance coverage. The guaranteed issue and community rating requirements ensure that anyone can buy insurance; the coverage requirement creates an incentive for people to do so before they get sick; and the tax credits—it is hoped—make insurance more affordable. ”

“ Each insured gets a contract of indemnity for the payment of a sum that will help cover the losses of others. Such an exchange is mutually beneficial. The premium comes from marginal income; the loss if it occurs would fall upon the parts of income having higher value to the insured. The less urgent needs of the present are sacrificed in order to protect the income that gratifies the more urgent needs of the future. In insurance each party gives a smaller value for a greater; each makes a gain. The greater security in business stimulates effort. ”

“ The net value of the policy, when the premium becomes due, and is not paid, shall be computed * * * and after deducting from three-fourths of such net value, any notes or other evidence of indebtedness to the company, given on account of past premium payments on said policies, issued to the insured, which indebtedness shall be then canceled, the balance shall be taken as a net single premium for temporary insurance for the full amount written in the policy. ”

“ 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. ”

“ 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? ”

“ In the event of the death of the insured during the days of grace, the current premium being unpaid, if no other option has been elected, or if the policy shall lapse, the dividend then due shall be paid in cash. ”

“ On the point of equity, it must be admitted that any system of so-called insurance which, like that of the English Act, excludes a large proportion of the population who, while paying in taxes in aid of the insured, require but do not receive their benefits, is contrary to the principle that any expenditure of Government funds should enure to the whole community in need of the provision in question. ”

“ Thus the expected losses of any year according to the table of mortality, divided by 1 + rate of yield on investments raised to the power of years distant, equals the present worth of insuring the entire group for that year. The sum of the discounted cost of insurance for all the years of the term divided by the number living at the beginning of the period, gives the single premium for each of the insured. ”

“ There will thus be a "saving from loadings."
Every company, as has been said, shows these savings every year, though in varying degrees. Every company, that is, charges the policy-holder more than the actual insurance costs. ”

“ Thus assessment insurance has gradually placed itself upon a higher and more scientific basis, until it has commended itself to the most intelligent and thoughtful, and in its wonderful growth outstripped its older and less popular rival, until its obligations to the families of the insured exceed those of level premium insurance to the amount of about two thousand millions of dollars. ”

“ And while the guarantee of cash value based on net premiums reduces substantially the investment risk of the contract holder, the assumption of an investment risk cannot by itself create an insurance provision under the federal definition. ”

“ Respondent has not established an asset for future benefit. It has merely paid the premiums necessary to obtain insurance. It is true that premiums paid in 1963 may result in a reduction in premiums in later years. ”

“ When the sum insured is large, a higher premium per cent. is demanded; and money, papers, pictures, gunpowder, and jewels, are excluded.—If an article be falsely described, in order that it may be insured at a lower premium, the policy is justly void. An insurance made on the same subject at different offices, must be specified by indorsement on the policy; and, in case of loss, the offices pay a sum in proportion ”

“ Though this excess of premiums paid is legally the sole property of the company, still in practical effect, though not in law, it is moneys of the assured, deposited with the company in advance, to make up the deficiency in later premiums to cover the annual cost of insurance, instead of being retained by the assured, and paid by him to the company in the shape of greatly-increased premiums, when the risk is greatest. It is the 'net reserve' required by law to be kept by the company for the benefit of the assured, and to be maintained to the credit of the policy. ”

“ In the higher order of life insurances, the legislature has endeavoured to arrest the dangerous tendency of insuring beyond the interest, by providing, by statute 14 Geo. III., c. 48, that persons insuring the lives of others shall have an interest in such lives; and it is a principle of insurance law that where a risk paid for has not been run, the premiums shall be returned ”

“ The insurable value of the various properties of the company must amount to six or eight million dollars. The average rate on those properties would probably be about seventy-five cents per hundred dollars a year for insurance. That would make a premium of say fifty thousand dollars per annum. The commission to the insurance broker who handled that line—who could secure it and control it—would be ten per cent of fifty thousand, or five thousand dollars. ”

“ Such is the form of the contract, and such is its character. It has been contended that the payment of each premium is the consideration for insurance during the next following year,-as in fire policies. But the position is untenable. It often happens that the assured pays the entire premium in advance, or in five, ten, or twenty annual instalments. ”

“ And the average life policy becomes a claim thirty years after the first payment is made. Again, the company receives much larger amounts than the actual insurance cost. This peculiarity results from the fact, described in the first article, that men will not pay for their insurance as they go. They will not pay its actual cost this year, its actual cost next, and so on—on the natural premium plan, that is—but insist on paying the same amount each year—or a level premium. ”

“ If fires destroy a million of dollars’ worth in property insured for its full value, and a million’s worth more in property insured for one-tenth of its value, the insurers will pay $1,000,000 upon the first group and more than $750,000 upon the second. But if all the insurance is taken at the same rate the insurers will have received premiums ten times as great on the former group as upon the latter. ”

“ Now, since the uniform annual premiums are just sufficient to provide for the ultimate payment of the sums insured, it is obvious that the deficiencies of later years must be made up by the excess of the earlier payments; and, in order that the insurance office may be in a position to meet its engagements, these surplus payments must be kept in hand and accumulated at interest until they are required for the purpose indicated. ”

“ With the present statute, by contrast, there are many ways other than this unprecedented Individual Mandate by which the regulatory scheme's goals of reducing insurance premiums and ensuring the profitability of insurers could be achieved. For instance, those who did not purchase insurance could be subjected to a surcharge when they do enter the health insurance system. Or they could be denied [p655] a full income tax credit given to those who do purchase the insurance. ”