proper to cover the loss, and the company may sue and collect on the other claims.

Notes:

I.

2.

It is wiser to leave property in its damaged condition after a fire until the adjuster arrives. But if there is danger of its becoming more damaged by being left, it should be removed to a place of safety. The insured should take every precaution to keep the loss as low as possible.

Be sure to include everything in the inventory and to state its full value. It will be very difficult to prove any greater value afterwards.

I.

REVIEW QUESTIONS

What is a contract of insurance?

2. Why must the person insuring have an interest in the property insured? Has a mortgagee an insurable interest?

3. What is the difference between an insurance broker and an insurance agent?

4. What is the distinction between an open and a valued policy? 5. What occurrences may invalidate a policy?

6. What phrase is used if a mortgagee insures property? What will be the extent of the mortgagee's recovery if the mortgage had been reduced before the fire occurred?

7. A notice of the premium due is sent to the insured with no mention of a penalty for failure to pay. Does policy lapse if payment is tendered one month late and refused by the company?

8. What is the meaning of an 80 per cent clause in a fire insurance contract or policy, and what would be the cash settlement by the insurance company in case the property insured inventoried at the time of the fire $150,000 but was insured for only $100,000? What would be the settlement if the property insured inventoried only $75,000 but was insured for $100,000?

9. What representations are material? What is a concealment and when must it take place in order to avoid the policy?

10.

An insurance company fails, and can pay but 6 per cent of its liabilities. Some of its risks are reinsured. Is the solvent reinsurer liable for the whole amount insured by it, or only for the amount which the bankrupt insurer pays? Answer fully and give reasons.

CHAPTER XXXVIII

LIFE INSURANCE

$235. Nature of Contract

Life insurance today is one of the most important businesses in the country. Before the invention of the mortality tables the rates were high and the business was on too uncertain a basis to be widely utilized. With its present development it has become of the greatest value as a means of saving, investing, and protecting business. Its value as a protection against a dependent old age has caused governments throughout the world to become interested in it, different forms of oldage insurance being in use in various countries and among the state employees of Massachusetts.

This form of insurance has been under discussion for the past few years by the various state legislatures and commissions appointed for that purpose, but aside from Massachusetts has not actually come into being. The main objection, of course, to such insurance is that it will raise the taxes, and legislatures do not feel that the need is great enough to justify the increase of taxes at the present time.

$236. Insurable Interest

Like the contract of fire insurance, the contract of life insurance is a speculative one. If a person attempts to insure the life of someone other than himself, he must have an insurable interest in it, though this interest need not continue during the life of the insured nor exist at his death. One may, however, insure one's own life and make such insurance payable to a beneficiary who has no insurable interest in one's life.

An insurable interest in a human life is not easy to define. Generally the party who does the insuring must be related to the insured by such ties of blood, marriage, or contract that the death of the insured would materially injure him. A married couple have an insurable interest in each other's lives; a father has an insurable interest in the lives of his children because they might some day support him; a sister may insure her brother for similar reasons; a partner may insure the life of his copartner; or a creditor may likewise insure the life of a debtor.

$237. The Parties

The parties to a life insurance policy are: the person whose life is insured, or the applicant; the person for whose benefit it is insured, or the beneficiary; and the person or company insuring it.

Life insurance may be conducted either through a corporation, or through a fraternal organization, or it may be mutual. Many of the large life insurance companies are either mutualized, or are mutualizing. In a mutualized life insurance company, all excess over actual cost of insuring is later returned to the policyholders as dividends. In a stock corporation, this excess goes to the stockholders. Where a former stock company becomes mutualized, provisions are usually made by which the stockholders and policyholders are each to have a share in the dividends in proportion to what is determined to be their actual interest in the company.

Fraternal benefit insurance exists among the various masonic and other orders and in many business organizations. It is a form of mutual life insurance. When a benefit falls due, it is raised by assessment on the members in proportion to their rights to benefit by the fund, or else a fund is raised by assessment and kept on hand to meet the benefits as they become due.

$238. The Policy

Policies are of various forms. In participation policies, the accumulated surplus in any year is divided among the policies and the share of each is credited to it, to be paid over when the policy becomes due.

In non-forfeitable or incontestable policies, the company agrees that after a certain period of time the policy shall not be forfeited for any cause except non-payment of premiums. Courts will usually enforce this agreement. Of course, if the beneficiary has no insurable interest, the contract would have been illegal from the first and could not be enforced.

Policies may be whole life, that is, the premiums continue to be payable until the death of the person whose life is insured. If the policy is a participating one, the dividends may either be applied to reduction of the premiums, or may be accumulated, as the holder prefers.

Another form of policy is limited payment life. The premiums on this class of policy are so divided as to be payable within a limited number of years. After this the policy becomes a paid-up policy and is payable on the death of the person whose life was insured.

There are also endowment policies and term policies. The endowment policy is perhaps the most common form of policy. Under it, the amount is payable either at the end of a fixed term of years, or upon death in case of death before the expiration of that period. This policy operates both as an investment and a protection. At the end of the term the insured may, as a general rule, exercise his option to take out a paid-up policy and leave the money invested.

Term insurance is unlike endowment insurance in that it does not allow any accumulations, nor permit the holder to take out a paid-up policy at the end of the term. When the term has expired it simply lapses.