738 THE POPULAR SCIENCE MONTHLY. 



probable exigency will demand, so as to be absolutely safe. At fixed 

 periods the amount collected, in excess of actual cost, is distributed 

 among the contributing members. It is erroneously called "profits" 

 or " dividends," when, in reality, it is only a return of unexpended 

 assessments. When the system was new and untried, it was not 

 thought prudent to make such restitution oftener than every five years. 

 Gradually experience led to greater confidence, and competition intro- 

 duced the practice of annual " dividends." These are principally de- 

 rived from the higher rate of interest realized than the legal standard 

 assumes, from a lower mortalitv than the table estimates, and from the 

 excess of loading over actual expenses. Various ways of distributing 

 this surplus have been in use, but the so-called " contribution plan," 

 now universally adopted in the United States, is unquestionably the 

 most equitable ever devised, as it returns to every member precisely 

 his proportion of the over-payments. It may be best explained by an 

 illustration. 



Take a policy issued at 25, at an annual premium of $19.89, on 

 w^hich a cash dividend of $6.72 has been declared at the end of year 38. 

 Assume the expenses aj)plying to this policy to be equal to about 10 

 per cent, of the annual premium, the average rate of interest realized 

 5^ per cent., and the actual mortality experience to be 10 per cent, 

 less than the table indicates, the account would then stand as fol- 

 lows : 



Reserve at the end of year 37 $101 51 



Gross premium $19.89 paid at beginning of year 38, being net premium 13 42 



Loading $6 47 



Less actual expenses incurred 1 99 



4 48 



$119 41 

 Interest earned at 6^ per cent 6 57 



$125 98 



Reserve at end of year 38 $111 74 



'Cost of insurance according to table $8 35 



Less saving by actual mortality (10 per cent.) 83 



7 52 



119 26 



Hcturn due on policy ... $6 72 



The same result may be shown in another w^ay : 



Legal reserve based on 4t\ per cent, interest, actually earned 5 J per cent., being 



gain of 1 percent, on $111.74 $1 12 



Loading exceeds actual expenses 4 48 



Interest on same at 5| per cent 25 



Actual mortality less than assumed 83 



Interest on same at 5 \ per cent 4 



$G 7 



o 



