Life Insurance Forces and Encourages Thrift
Not only does life insurance render safe the insured's effort to accumulate
a fund through saving by hedging him against early death, or itself furnish
a profitable and safe investment, but for the great majority of people it
constitutes an excellent means of encouraging and even forcing thrift. There
are few institutions, if any, which have given such excellent schooling
along this line. Savings banks, of course, do their share in developing
the saving instinct among the masses and building and loan associations
have also assumed a prominent position in this respect. But, usually, institutions
of this character have the shortcoming that they permit the depositor to
withdraw all or nearly all of the funds after giving notice of a certain
number of weeks, with the result that a resolution to save over a long period
may be broken when the depositor for one reason or another sees fit to withdraw
the amount deposited.
In life insurance nearly all the types of contracts sold contain a savings
feature, and this is especially true of the so-called endowment policy which,
as will be explained more fully later, promises the payment of a stipulated
sum not only upon the death of the insured during a given term of years
but also upon his survival at the end of that term. Of course, in order
to receive, say, $10,000 at the end of fifteen or twenty years the insured
is obliged to pay to the company a sufficient amount in annual, semi-annual
or quarterly premiums to enable the company, after improving these payments
at compound interest, to accumulate a fund by the end of the period which
will equal the sum stipulated in the contract. Whatever the policy-holder
has accumulated to his credit cannot as a rule be withdrawn from the company
during the first two or three years, and it is also the general practice
to apply a penalty in the form of a surrender charge in case of withdrawal
during a considerable number of years following the payment of the third
premium. Furthermore, the regular payment of the premium from year to year
will soon be looked upon by the insured in much the same manner as he comes
to regard interest upon a mortgage. Consequently to secure the necessary
funds to pay the premium his industry will be considerably enhanced or his
efforts to save the required premiums out of income will be increased. In
fact, it is the common assertion of innumerable individuals who were the
holders of endowment policies that at the end of fifteen, twenty, or twenty-five
years they became the possessors of a considerable sum of money which, under
other circumstances they would never have accumulated, or which, if they
had done so, would have been lost or dissipated. Life insurance, in other
words, tends to bring about compulsory saving, and represents the accumulation
of small sums (which in all probability would not otherwise be accumulated)
over a long period of years into a substantial sum. In brief, life insurance
generally bears the relationship to thrift that the modern utilization of
byproducts (largely wasted in former years) bears to many of our leading
manufacturing enterprises of to-day.
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