464 GILBERT E. ROE 



expended. One is to meet the legitimate expenses of conduct- 

 ing the business, the other is to meet death losses as they occur. 

 Every premium, therefore, contains these two elements, or at 

 least it may properly be applied to these two objects. As, 

 however, the death rate increases rapidly with increasing age, 

 the premium rate to meet death losses among the very old 

 would necessarily be practically prohibitive. To avoid this 

 and in order that the premium may be kept level, or at the 

 same sum throughout the life of the policy, what is called a 

 reserve is accumulated. With the reserve we have little to do 

 in the present discussion. It may roughly be described by 

 saying that the company, by means of the mortality tables, 

 can compute approximately the number and amount of its 

 policies, among the large number outstanding, which will 

 probably mature by death in each succeeding year, and a sum 

 is held or reserved which, compounded at the rate of interest 

 required by law, will enable the company to pay all its policies 

 as they mature. Generally speaking, it may be said that the 

 reserve is a sum laid aside out of the premiums paid which, 

 compounded at the rate of interest which the law requires, 

 will, when the last person dies during his ninety fifth year, 

 according to the mortality table, be just sufficient to pay the 

 final death claim. The law of every state fixes some low rate 

 of interest which the reserve fund must earn, ranging usually 

 from three to four per cent. It is the reserve, with future 

 premium payments, that keeps the company solvent and makes 

 it certain that its death claims will be paid as they mature. 

 With the reserve we have nothing further to do in this discus- 

 sion, and my only purpose in mentioning it was to distinguish 

 between it and another accumulated fund of the company 

 which is called the surplus. 



Surplus is just what its name indicates. That which 

 remains above what is used or needed ; excess beyond what is 

 prescribed or wanted; more than enough. If it were possible 

 for those conducting the business of a life insurance company 

 to know the future, to know in advance each year how many 

 members would die, and the claims which would mature and 

 the interest which the money of the company would earn and 

 the expenses which it would need to incur, there would be no 



