The justification of this system, which has been offered, is first, that it provides merely the funds which an eco nomically conducted company requires in order to procure new business, and, second, that it is a system of loading as nearly scientific as the present laws and conditions ad mit of. The greatest living actuary of Great Britain, Dr. Thomas Bond Sprague, first advocated a similar system in that country, and asserted that in even the most carefully conducted companies preliminary expenses and losses ex haust pretty much all the first year's premiums, especially on whole life insurances. Emory McClintock has ex pressed similar views as regards the United States.
Other methods of modifying the full preliminary term method have since been introduced, as confining the extra first year's loading to not more than the excess of the net twenty-payment life premium over the net one-year term premium.
It is customary also to add a percentage loading to net single premiums, and sometimes also a fixed amount per $1,000 insured. In this country, with few exceptions, all the loading on single premiums and on limited premiums is considered to be immediately available when received, and no part of the same is reserved to cover expenses after 81 the policy becomes paid-up. Companies in some other countries adopt the contrary practice.
Under the prevailing customs, limited-payment policies during their payment period and endowment insurance policies contribute more, per $1,000 insured, for expenses, than do whole life policies issued at the same age. In con sequence, insurance under such contracts really costs the insured more, currently. There have been cases of load ing on a ten-year endowment premium as much as, or even more than, the entire whole life premium for the same age.
Such are the peculiarities of loading systems which have grown up under the spur of competition, and, until within a few years, without much careful scientific con sideration of the real nature of the problems to be solved.
The laws of New York now recognize the "select and ultimate" method of determining the extra loading the first year, as the maximum provision; this confines the amount to the "present value of assumed mortality gains for the first five years of insurance" according to the fol lowing assumptions : Mortality, first year, so per cent. of rates according to American Experience Table; second year, 65 per cent.; third year, 75 per cent.; fourth year, 85 per cent.; fifth year, 95 per cent. This method requires the special allowance to be made good within the five years. This method was introduced to the attention of actuaries by the author of this book, in co-operation with Emory McClintock and Henry Moir, in 1905.
The laws of New Jersey limit the allowance to the straight modified preliminary term loading plus half the mortality provision for that year, according to the Ameri can Experience Table, and require it to be made good in seven years.
The minimum reserve standard of Canada limits the 82 allowance to the straight modified preliminary term load ing and requires it to be made good in five years.
In some of the European countries, as in Sweden, the allowance is also limited. In Sweden it must be made good in five years, in Denmark in six years and in France in seven years. In the last two countries, the amount of the allowance is not otherwise limited.