THE INSURANCE INVESTIGATION 463 



premiums." The Mutual Life Insurance company answered: 

 " Dividends are declared annually." The New York Life In- 

 surance company answered: "Dividends are declared annu- 

 ally." Such in substance were the answers also of all the 

 companies reporting to the New York department. 



What do the words surplus and dividend mean, in the 

 fundamental law of these companies, referred to above, and in 

 the reports made to the insurance commissioners? Whatever 

 the words mean and from whatever source surplus is derived, 

 I have now conclusively shown that up to the year 1868, at 

 least, the surplus was always returned to the policy holder at 

 short periods varying from one to five years. The answer to 

 this question requires a somewhat further explanation of the 

 principles upon which life insurance is conducted. There are 

 two fundamental facts which all rational life insurance recog- 

 nizes. The first is, that all men must die, and the second is, 

 that the probability of dying, disregarding the years of infancy, 

 increases with increasing age. So certain is this latter fact 

 that, starting with a large number of fives, say one hundred 

 thousand at age ten, it may be prophesied with approximate 

 certainty how many will die in each succeeding year. The 

 experience of one American life insurance company combined 

 with that of seventeen English life insurance companies in this 

 matter, was gathered, and about forty five years ago formu- 

 lated and set forth in a table which is called the American 

 Experience Table of Mortality. There are also other mor- 

 tality tables, but this is the one most commonly used in the 

 United States. Starting with one hundred thousand lives at 

 age ten, this table shows how many are expected to die each 

 succeeding year, the death rate increasing with increasing age, 

 until age ninety five is reached, when, according to this table, 

 three persons are alive, and these are expected to die during 

 that year. It becomes, therefore, a comparatively easy matter 

 for a life insurance company by the use of the mortality tables 

 to approximate the loss by death which its membership must 

 suffer from year to year and the amount of insurance which in 

 consequence must be paid. 



Now it is perfectly obvious that there are two purposes 

 for which the funds of an insurance company may be properly 



