ON THE NATURE OF IJS 7 SRANCE. 265 



another speculation, of another kind, the same species 

 of risk might give a contrary result. 



Among the sources from which the insurance offices 

 have drawn profit, we must reckon lapsed policies. It 

 has frequently happened that an individual insuring his 

 life has continued to pay the premiums for a few years, 

 and then, either through incapacity to continue the 

 payment, or because the object of his insurance was 

 otherwise attained, has allowed his policy to lapse to 

 the office by non-payment. The office, of course, is 

 benefited, but not, as might be supposed, by the total 

 amount of his premiums. What they have received 

 does not all become profit by the lapse of the policy, 

 but only that portion by which the premium for the 

 whole life exceeds the premium for a temporary in- 

 surance. Every premium which is paid by an insurer 

 contains the consideration given for the chance of his 

 dying in each and every subsequent year. If, then, he 

 remain a member of the office, and stand the risk of 

 death during a certain number of years, all such part of 

 his premiums as was consideration for the risks of those 

 years became due to the office, and was taken by the 

 office, as compensation for those risks, and cannot 

 therefore be said to fall to them as profit upon the lapse 

 of the policy. Two individuals, A and B, go to the 

 office on the same day, and insure their lives for the 

 same sum, A upon his whole life, and B for seven years. 

 A pays, say 101. of premium, and B 11. At the end of 

 seven years, A allows his policy to lapse, just at the 

 time when B's policy expires by its own construction. 

 What does the office gain by the lapse ? Evidently the 

 temporary annuity of 31. , by which the two premiums 

 differ. The 11. paid by A out of 101. is not more than 

 sufficient to pay his share of the claims which arose 

 during the years which he continued in the office : the 

 remaining 31. was a reserve for future years, which 

 becomes profit to the office on his declining to stand 

 the risks of those years. 



Perhaps no part of the subject is less understood than 



