Gain from Investment Earnings

Since life-insurance policies are written for a long term of years it is essential that the companies assume a rate of interest for their net premium and reserve computations so conservative as to preclude any likelihood of failure to realize the same at any time throughout the life of the contract. At present the assumed rate is usually 3 or 3½ percent, although many of the old policies still in force were issued on the assumption that a 4 percent, rate would be realized on investments. If a company has based its net premiums and reserves on the assumption that it will earn 3 percent, but actually earns 4 or 4½ percent., as is now generally the case, that 1 or 1½ percent, (minus the expenses connected with the making and maintenance of investments) represents the excess of investment earnings over and above the return necessary to the solvency of the company, and ma}r, if considered advisable, be returned to the policyholders who contributed the same. Frequently a company may gain large profits from appreciation in the value of its investments, and this item is usually included under the general heading of interest earnings.