FRATERNAL INSURANCE IN AMERICA 239 



realize the a(lvaiita«z;e of assumin^i; a more unfavorable mortal- 

 ity rate than their own experience realizes. No one will he 

 inclined to question the desirability if not also the necessity of 

 errinji; on this side of the line. 



Here we are confronted by the question of reserve and 

 surplus. An ideal system of pure life insurance would be one 

 in which the actual experience is identical with that assumed 

 in the mortality table upon which the organization in question 

 bases its tables of premium rates; in which the interest earn- 

 ings are exactly equal to the assumed rate; in which the ex- 

 penses of management absorb only the sums set apart as load- 

 ing; and in which there exist no lapses, surrender values, etc. 

 It is needless to add that such an ideal can never be fully real- 

 ized in practice. To base gross premiums or assessments on 

 the lowest possible death rate, a high rate of interest, and the 

 least allowance for expenses of management, and then en- 

 counter experience more unfavorable than that which was 

 assumed in estimating premiums, in any one or more of these 

 lines, if continued for a longer or shorter period of time, can 

 result in nothing but failure. To assume too high a rate of 

 mortality, too low a rate of interest, and too heavy an expense 

 in administration, makes premiums unnecessarily high, and 

 results in the accumulation of a large surplus. This is what 

 fraternal societies object to ; yet, if an error is made, it should 

 certainly be made in this rather than in the opposite direction; 

 and with wise management, under a participating system, a 

 distribution of these accumulated funds w411 ultimately be of 

 benefit to the policy holder. With a relatively small number 

 of exceptions, fraternal insurance societies have erred not only 

 in neglecting scientific mortality tables, but also in assuming 

 experiences much too favorable under present social condi- 

 tions. On the other hand, their aim to provide pure insurance 

 at the lowest possible cost is a laudable one, and, when ac- 

 cepted business methods are pursued, capable of diffusing 

 great benefits among members. The accumulation of an 

 enormous surplus is considered inconsistent with fraternal 

 principles; yet it should be added that the accumulation of 

 no surplus whatever is probably always (except in natural 

 plans) inconsistent with safe business principles, because it 



