LIFE
INSURANCE
Outline:
1.
The wisdom and duty of insuring one’s
life.
2.
Life insurance explained.
3.
How life insurance companies can meet
claims and make a profit.
Life insurance is a very useful
method to provide for one’s own old age, or for one’s family in case of
premature death. It is wise for everyone to insure his life; but it is certainly
the duty of a married man who depends upon his daily work for his income. For
if anything happens to him before he has been able to save enough to keep his
family in comfort, those he loves best in the world may be left to starve.
How does the system of life
insurance work? An insurance company, in return for certain monthly or yearly
payments (called “premiums”) for a certain number of years, undertakes to pay
you, at the end of the period fixed, a certain agreed upon sum of money, or to
pay the same amount to your wife or family on your death, if that occurs before
the term is up. For example a young man of, say, thirty years of age, can
insure his life for Rs.10,,, to be paid to him when he is sixty years, old or
to his family if he dies before he reaches that age. The bargain between him
and the company looks, at first sight, something like a bet; for the length of
his life and the date of his death are quite unknown. If he lives to be sixty,
the company gains, because Rs.10,000; and the company will in the meantime have
made a profit on the money by investing it. On the other hand, if he dies soon
after he has taken out the policy, the company loses; for it has to pay his
family Rs.10,000 while it has received only a few years premiums, perhaps only a
few hundred rupees.
This being so, how can an insurance
company carry on its business and make a profit? Because insurance business is
based upon very careful mathematical calculations of the average number of
yearly deaths in a certain population, and the average expectation of life at
any give age. Of course no one knows how long any particular man will live or
when he will die; but carefully collected statistics do show what percentage of
the populations dies every year, and how long, on a fairly safe average can be
struck; and the premiums to be paid in, and the policies to be paid out, can be
so balanced over a period of years that the company can make a profit, and yet
be able to meet all claims as they arise.
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