Annals of the American Academy of Political and Social Science

In the article on "Correspondence School Instruction by Non-Academic
Institutions" which appeared in the September, 1916, issue of The Annals (page
205), the name "La Salle Institute" should have read "La Salle Extension Uni-
versity." This correction is made at the suggestion of the author and in fairness
to the La Salle Extension University, of Chicago, concerning whose work data
are there given.

INCOME POLICIES

BY WALTER LEMAR TALBOT,

President, The Fidelity Mutual Life Insurance Company.

All life insurance is a provision for the future. For many years it was the provision of a definite sum of money to be paid in full to the beneficiary at the death of the insured. Income insurance looks a little farther into the future; it safeguards the proceeds of the policy by making definite provision for their distribution over a period of years. This form of insurance is one of the more recent developments of the life insurance idea and it stands out as a milestone in our economic progress. Before the coming of income policies, when a man insured his life under one of the usual forms of life policies, he was looking ahead to the day when death would deprive his wife or other dependents not only of his presence and companionship, but also of his income, and he visualized the payment by the insurance company of a stated sum of money which would, in part at least, compensate his dependents for the loss sustained. In the light of this later development of income insurance, the man insuring today has a clearer vision of the future. He can see well beyond the time of his own death; he can reach out into the after years, by means of an income policy, and can thus assume the burden of a proper distribution of the proceeds of his life insurance instead of placing this burden upon his dependents. He can also insure such a proper distribution to his own declining years.

Everyone who knows anything at all of life insurance has heard of at least three of the plans upon which it is written, namely, ordinary life, limited payment life and endowment. The first plan provides for the payment of a stipulated level premium during the entire lifetime of the insured; the second plan provides for the payment of a stipulated level premium for a limited number of years. Both plans give insurance for life, under promises to pay the amount of the insurance to the beneficiary upon the death of the insured. The third, or endowment plan, like the limited payment plan, contemplates the payment of premiums for a specified number of years only, but unlike either, the insurance is effected under promises to

pay the amount thereof upon the insured's attaining a certain age, or at death prior thereto.

Until within recent years the proceeds of these and other forms of policies were paid to beneficiaries in a lump sum: Latterly it has become much the vogue to disburse the proceeds in instalments, and therein lies the origin of the income policy. It will be seen, therefore, that the income policy is not a new plan of insurance, but simply contains a device or method, grafted on to the older plans, for leaving the proceeds of the policy with the insuring company, to be paid in instalments; and it may be written on the ordinary life, limited payment, endowment, and even on the term plan.

Income policies are divided into two great classes-those which provide income for beneficiaries and those which provide income for insurants themselves. The first is constructed by incorporating the income feature in ordinary life and limited payment life plans; the second is constructed by applying the same method to endowment plans or by the incorporation of disability benefit provisions in any of these plans. A treatment of the idea as a whole entails the consideration of the various types of income provided, and the application of these types to each of the forms of insurance to which they have been adapted.

TYPES OF INCOME

"Income" is rather a broad term. In its general application it may cover revenues arising from many sources. In its application to the subject in hand it deals specifically with certain types of instalments and annuities, hence it is desirable that our terminology be made clear.

Instalments. The term "instalments" when used in connection with an insurance policy refers to sums of money payable at stated times for a definite period. We thus have policies payable in ten, fifteen, twenty or more annual instalments certain; and in such case the instalments are payable during the fixed period whether the person to whom they are payable lives out that period or not. If the person to whom such instalments are payable dies before the end of the period, the remaining instalments can be made payable to the estate, or the commuted value of the same can be paid.

Life Annuities. A life annuity is an amount payable each year to an individual, dependent upon the continuance of the life of that

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Annals of the American Academy of Political and Social Science, Svazek 70