THE INSURANCE INVESTIGATION 4^5 



such thing as surplus. The premium which is paid in advance 

 would be made just sufficient to meet the requirements of the 

 company during the period covered by the premium. But 

 because these matters can not be known in advance with 

 absolute certainty, they must be estimated; and because all 

 estimates are, and very properly should be, made on the side 

 of safety, it comes about necessarily that more money is col- 

 lected according to the estimate than is properly and necessa- 

 rily used in meeting the actual expenses and paying death 

 losses that actually occur; and this excess is called the surplus. 



The amount of this surplus which is from time to time re- 

 turned to the policy holder, is called, though improperly, a 

 dividend. It is not properly a dividend at all; it is merely the 

 repayment to the policy holder of the money collected in ex- 

 cess of what has subsequently been found necessary to meet 

 the needs of the company. That is why it is returned to the 

 policy holder. The surplus is derived practically from three 

 sources : First, gains made from investments in excess of the 

 interest rate which the company assumed its funds would earn; 

 second, lower mortality than estimated according to the mor- 

 tality table employed; third, less expenses than estimated and 

 provided for in the loading of the premiums, as it is called. A 

 possible fourth source of surplus, though not strictly so, may 

 be said to be the accretions from forfeitures and surrender 

 charges. 



The accumulations from these sources are necessarily very 

 large. The mortality tables by which the number of deaths 

 to be anticipated are calculated were compiled many years 

 ago, since which time medical science and improved methods 

 of living have greatly lessened the death rate. So also the 

 excess of the interest earnings over the estimate is very great. 

 The aggregate surplus according to the reports of the three 

 companies which we are using as illustrations, in 1894 amounted 

 to seventy seven million twenty one thousand four hundred 

 and eighty five dollars. In 1904, according to their reports, it 

 amounted to two hundred and two million two hundred and 

 eighty thousand eight hundred and nineteen dollars, an in- 

 crease of substantially a hundred and twenty five million dol- 

 lars in ten years. Or, to put it in another way, the aggre- 



Vol. 3—30 



