INSURANCE IN PRACTICE 453 



that first year of the policy's issue and the holder of it died, his 

 family would have received the $1,000 insurance and have had 

 in bank the $956.68 remaining after the payment of the first 

 year's premium — more than the savings bank alone would have 

 had for the heirs at the end of twenty years. 



And in the meantime, under honest administration of the 

 affairs of either concern, the bank and the insurance company 

 have only the same common field of investment for the funds 

 of their patrons held in trust. A savings bank ordinarily can 

 claim no security for its investments over the investments of 

 the life insurance company. Indeed, savings banks, as a rule, 

 are given greater latitude by legal enactment in the matter of 

 investments than are the fife insurance companies. 



How does the insurance company find it possible to offer 

 this seemingly extraordinary inducement above the savings 

 bank? 



For several reasons, chief of which is that the bank pays 

 a fixed rate of interest on its deposits of 3 per cent or 3^ per 

 cent. The insurance company, on the other hand — whether 

 on the stock or mutual plan — credits each policy holder with 

 the entire interest earnings on the funds behind his policy. 

 Then again the insurance company is able to earn a higher rate 

 of interest on its funds than is the bank. The bank must hold 

 itself in readiness at all times to convert its funds into cash 

 quickly to repay its depositors on demand, for it cannot fore- 

 tell what its withdrawals will be. The insurance company can 

 foretell with a marked degree of certainty what its withdrawals 

 will be, and is in consequence enabled to invest its funds in 

 what are known as long time securities, such as mortgages run- 

 ning for a period of years. These pay the company a much 

 higher rate of interest than the bank gets on its short time and 

 demand loans. Then again by a careful selection of applicants 

 for insurance, accepting those only whose family history, phy- 

 sique, and environment are such as to indicate ability to with- 

 stand disease, the insurance company is enabled to profit by 

 experiencing a lower death rate than that shown by the table 

 on which its rates are based. 



Strange as it may seem, the payment of a death claim by 

 an insurance company does not mean a loss to the insurance 



