Necessity of Accumulating a Fund for the Payment of Claims

While all forms of insurance are alike in that they require for their successful operation a combination of many risks into a group, they are vitally different as regards the nature of the risks covered. In this respect the chief difference between life and other forms of insurance is that in the latter the contingency insured against may or may not happen, and as regards the great majority of policies written, does not happen while in life insurance the event against which protection is granted, namely death, is a "hazard converging into certainty". It is necessary, therefore, if a life insurance policy is to protect the insured during the whole of life, to provide not only against the risk of death each year, but also to accumulate an adequate fund for the purpose, as Mr. Dawson states, "of meeting at the ultimate limit of human life an absolutely certain claim if one has up to that time been escaped".He further adds: "It was failure to see the necessity for providing for an increasing hazard, converging into certainty, which has caused many serious errors in the fundamental plans of some institutions formed to furnish life insurance, and the thing which separates plans of insurance into sound and unsound is precisely whether intelligent regard for this principle has guided the company in determining its rates of premium and the management and disposition of its funds".