MATHEMATICS OF LIFE INSURANCE 43 



surplus, and lose for the policy-holders most of their dividends; but the 

 policies proper would be safe. Another argument frequently advanced 

 is that many men are unable to save small sums of money, but, being 

 obliged to pay their premiums, are thus in a measure compelled to save 

 each year a certain amount, which in the course of twenty years accumu- 

 lates to respectable proportions. While arguments could be advanced 

 against this, it is, however, true that the point is, to a certain extent, 

 well taken. 



It is clear that, in order to insure the safety of the reserve — that is 

 to say, of the poLcy proper — there ought to be a reasonable surplus. 

 On the other hand it is equally clear that the ojfficers of the company 

 should not be permitted lo manipulate the intrusted funds without 

 being accountable to the pohcy- holders. Perhaps the solution of this 

 difficulty lies in reducing the surplus, in some of the companies, to about 

 one-fourth or one-fifth of the present dimensions, and the requirement 

 of an annual statement to each policy-holder of his share in the year's 

 profits. 



But, aside from the fact that deferred dividends and the resulting 

 large surplus funds lead to speculation, extravagance, and all manner" 

 of graft, there is another strong argument against this system. Even if 

 by means of annual statements to the policy-holders and other methods 

 of publicity the present evils were eliminated, the objection about to be 

 given would still hold. 



The principle of deferred dividends is in direct antithesis to the 

 principle on which insurance is based. In insurance, the loser (i. e., 

 the one who dies, or, in fire insurance, the one whose house is burned) 

 is indemnified for his loss. The one who wins (i. e., who survives, or 

 whose house does not burn) gets his money's worth in the protection 

 he has enjoyed. 



With deferred dividends the contrary is the case: the one who loses 

 (i. e., dies) loses his dividends, and the one who wins (survives) gets 

 the share belonging to his less fortunate neighbor. You see, this is 

 exactly what happens in horse-racing: the "one who guesses wrong pays, 

 while the one who was correct in his surmise, wins. To summarize* 

 Insurance is indemnity for loss, while deferred dividends is pure gambUng. 



