Saving from Mortality

This saving arises from the fact that life-insurance companies in the United States do not experience on the average as heavy mortality as is indicated by the mortality table employed and which has therefore been provided for in the premiums. At the end of any given year the saving in mortality represents the difference between the face value of the policies to be paid according to the mortality table used and the face value of the policies actually paid minus the reserve on the policies thus not paid. The reserve, it will be recalled, was defined as that sum which, together with future premiums, will enable the company to pay future death claims. In calling saving from mortality a surplus it is assumed, as Mr. Miles M. Dawson well explains, that "the lives which complete the year, no matter if there have been fewer losses than as per the table during the year, have as good vitality and as good chances of life as the persons at their attained ages, from whose lives the experience was taken which made up the mortality table. Therefore, their future premiums, with their present reserves, assure the payment of their claims; and the premiums which have been received in excess of the needs of the past and of the reserve, may therefore be considered a true surplus". Most writers in discussing this source of surplus emphasize the importance of not placing too much reliance on the showing for any one year since mortality may fluctuate from year to year, and maintain that safety requires the finding of the company's experience in this respect for a number of years. It is therefore asserted that it is unwise for a company to distribute in dividends all of a large saving from mortality in one year, and that, if it is not desired to decrease dividends in later years, prudence requires the retention of a portion of such saving to balance a possible smaller saving in a later year.