International Styles

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 Whatever the policy-holder has accumulated to his credit cannot as a rule be withdrawn from the company during the first two or three years, and it is also the general practice to apply a penalty in the form of a surrender charge in case of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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