Life insurance is the combination of prudent men against misfortune. It is an invention of civilization and a practical application of the principle of co-operation, by which many contribute small sums to indemnify one, or his heirs against misfortune. Property may never burn, but every life must terminate, and hence the argument of prudence and safety applies even more forcibly in favor of life insurance than that of property. Nothing is more uncertain than the duration of human life, and yet the problem of this uncertainty has been reduced to a moral certainty by a long period of observations and classified statistics which form the basis of the business of life insurance.

The mathematical doctrine of probability was first enunciated by Pascal, the great French scholar, in 1654, and has since been elaborated by other writers. In 1671 De Witt applied it to the duration of human life. Gradually the death rate under definite conditions became established from carefully preserved records. This result is known as the mortuality tables. These tables represent the probability of death of various classes of persons under varying conditions, based upon past experience. Nothing is more reliable than the laws of average when applied to a large number of cases, and hence the business of life insurance is not speculative, but capable of the most exact and conservative management.

Life insurance was unknown to the ancients. It originated in England early in the eighteenth century, but the first regularly organized company began business there in 1765. The early companies did not require a medical examination as a part of the application for insurance. The rates of premium were fixed by guesswork, and a board of directors passed upon the applications for insurance. The business of life insurance has grown to enormous proportions and to a greater extent in the United States than in any other country. In 1850 there were perhaps a dozen "old line" life insurance companies in existence in this country. Today we have about eighty companies with a total amount of insurance in force of over $10,500,000,000, having assets of over $2,100,-000,000 and a surplus of over $300,000,000.

Two methods of life insurance are employed. The first is where a fixed and uniform rate of premium is charged, known as the "level premium" plan, because of the uniformity of the premium charged throughout a given period. This class of insurance is usually carried on by regularly organized companies, either stock or mutual, and known as "old line" companies. The level premium plan provides for the payment to the company of more than the amount necessary to cover the risk during the early years of the policy, and the surplus thus accumulated is set aside as a reserve, or invested in securities, which, with interest will be sufficient to make up the deficiency in later years. The second method is known as "assessment" insurance in which each member of the association is required to make payments into the general fund for the settlement of death claims, as the needs of the association may require, or at stated intervals.

It is a well established rule that the insurer must have an insurable interest in the life to be insured for indemity is the fundamental idea in all insurance. Insurance without being coupled with an interest would be a species of gambling. An insurable interest, however, does not consist of the ties of relationship, nor dependence for support upon the life insured. Insurance may be taken out upon the life of anyone whose death would cause financial loss to the beneficiary. In England and other European countries it is not unusual for business men to take out insurance on the life of their ruler to protect them from the financial loss that would be entailed by his death. Such insurance is procured without medical examination, or even the knowledge of the insured. In America this class of insurance is not written, but in every case it is necessary that the applicant should pass a medical examination and some companies require an investigation into the moral character and financial standing of the insured.

Life insurance companies are divided into two classes, viz: Stock and Mutual. A stock company is one which is owned by stockholders, the same as other corporations, who control its management and divide its profits. In some stock companies, however, the policy-holders are allowed a voice in the management, and in this respect they partake of the nature of mutual companies. Such companies may be called "mixed." In a stock company ordinarily the policy holders have no share in the management of the company. A mutual company is one which is composed of policy holders who elect the directors of the company and participate in the earnings. The two kinds of companies, however, usually operate on the same general business methods. The mutual companies are the more numerous.

The method of insuring lives which naturally first suggested itself was to make the contract of insurance for a single year, and then renew or extend it from year to year, after the manner of fire or liability insurance, increasing the rate of premium as the risk increased. There is the more reason for short term contracts in life insurance since the risk is constantly changing. The insured is growing older and may at any time develop symptoms of disease. Thus from birth to the age of 10 years the risk is constantly diminishing and then very slowly begins to increase until after middle life, when it increases at a constantly accelerated ratio. On the other hand, a property risk may remain substantially the same from year to year.

The contract of insurance is based on the application on the part of the insured, containing his "warranties, promises, consents and agreements," together with statements of the company's medical examiner. The application of the assured, together with the payment of the premium, constitute the consideration upon which the company's obligation rests. On the part of the company, its agreement is evidenced by the policy of insurance. A great variety of covenants and conditions are embodied in such policies. The nature of these will be considered under the title "kinds of policies." In other branches of insurance, the companies may cancel the policy at any time by returning a prorata portion of the premium, but this is not so in the case of life insurance. A contract once entered into and a risk assumed, is binding upon the company to the end of the term, unless cancelled by the consent of the insured. To rule otherwise would be a great injustice to the insured since it would leave him without insurance perhaps at a time in life when he could not procure it elsewhere.