MATHEMATICS OF LIFE INSURANCE 



41 



§ 5. The Loading — The Gross Premium 



We see from the preceding that it costs the company $370.55, or $27 

 per year for 20 years, to insure a man, age 35, for the term of his natural 

 life. Evidently, then, the actual office charge must be somewhat 

 larger. The additional charge, or so-called "loading," must be suffi- 

 cient to cover the various expenses — physician's fees, agent's commission, 

 canvassing literature and supplies, and salaries of officers. It must 

 also furnish a fund — a surplus — to provide for all other possible contin- 

 gencies — such, for instance, as a mortality in excess of the tabular rate, 

 interest earned less than the assumed rate of 3^ per cent., depreciation 

 in the values of securities, loss of invested funds, etc. While the assump- 

 tions as to interest and mortahty in the computation of the premium 

 have been on the most conservative basis, nevertheless, so long as human 

 judgment is fallible the possibility of error must be conceded. The 

 fundamental principle of life insurance is safety, and, if mistakes are 

 made at all, they must be on the side of safety. It is better to collect 

 too much money than too little; hence the importance of making pro- 

 vision for unforeseen contingencies. Theoretically, when these con- 

 tingencies are past, the overcharge is returned to the policy-holder in 

 the form of dividends. 



The net premium -I- loading = gross premium 

 or, 



Loading = gross premium— net premium. 



If the loading is divided by the net premium, the percentage of load- 

 ing is obtained. In Table IV is given the percentage of loading of six- 



TABLE IV 



