The principle of mutuality requires that the burden of expense in life insurance should be borne by all the members equally; but, even with the most careful adjustment, the allowance usually made is considerably in excess of what is needed in the regular companies doing business on the "level premium" plan.

It is customary in these companies to add to the net premium a percentage thereof to cover the expense account. This practice, though in harmony with the "commission system," is so clearly defective and so far removed from the spirit of life insurance mathematics, that it scarcely deserves even this passing notice.

It is generally understood that these corporations combine the functions of the savings bank and life insurance company, and it is only by separating the two in our minds as far as possible that we can obtain a clear conception of the laws that should govern the apportionment of the expenses among the great variety of policies.

While it is a comparatively simple matter to state the amount of either the insurance or savings bank element in a single policy, it is by no means easy, as things go, to classify the company's actual expenses on this basis.

Fortunately, we can pretty accurately determine what these amounts should be in any particular case.

In the first place, there are institutions in our midst devoted solely to receiving and conserving small sums of money; doing, in fact, exactly what our insurance companies are undertaking to do with the reserve and contributions thereto. These savings banks are required by law to make returns to the State commissioner, from whose official report we can get a very good idea of the expense attendant on doing this business.

Confining ourselves to the city banks, where the conditions more nearly resemble those of the insurance companies, we find in thirty-eight combined institutions for saving in the State of Massachusetts a deposit in 1888 of $192,174,566, taken care of at an aggregate cost of $455,387, or about 24-100 of one per cent.

The same ratio carried out for all the savings banks in Massachusetts gives a trifle over 25-100 of one per cent.; we may, therefore, consider ¼ of one per cent. as expressing pretty nearly the cost of receiving, paying out, and investing the savings of the people.

We must remember in this connection that in the popular estimation, the savings bank is an important factor in the public welfare, and in the towns and smaller cities there are often found public spirited men willing to give their services to encourage this mode of saving; but public sentiment has not yet given to life insurance the place which it is destined, sooner or later, to occupy by the side of the savings bank. Hence the services of able managers can only be obtained by a liberal outlay of the corporate funds. A satisfactory adjustment of the matter of expenses will, perhaps, do more than anything else to bring about this recognition on the part of the public.

In the case of the savings bank it is safe to say that for double the present outlay a liberal salary could be paid to all the officers. Following the analogy, we are led to infer that if this be the case in savings banks, then ½ of one per cent. of the reserve should be an ample allowance for the special labor required in the purely banking portion of the business.

In this we have the concurrence of the late Elizur Wright. In an essay on this subject he says:

"The expenses of the five largest savings banks in Boston, in 1869, did not exceed 4-10 of one per cent. on $28,000,000 deposited in them. They certainly had twice as many transactions, in proportion to the deposits, as any life insurance company could have with the same amount of reserve, so that ½ of one per cent. on the reserve seems to be ample for all working expenses save those of maintaining the agencies and collecting the premiums."

This need hardly be looked upon as an admission that it costs twice as much to care for the funds of a life insurance company as for those of a savings bank. A liberal expense allowance must be made at the outset, seeing that an error in this particular cannot easily be rectified after the policy is issued. The dividend, or, to speak more correctly, the annual return of surplus, will correct any overpayment on this account.

There is another expense which seems inevitable. This is the government tax on insurance companies, amounting in the aggregate to nearly 1/3 of one per cent. on the reserve.

When we consider that these institutions are intended to encourage thrift and to relieve the community from the care of numberless widows and orphans, it seems a clear violation of the principles of political economy to levy a tax on this business; still, whatever our opinion may be as to the justice or injustice of the imposition, the tax is maintained and must be provided for. Consequently a further allowance of ½ of one per cent. must be added to the net premium to cover the same, making a total of 1 per cent. of the reserve for banking expenses and taxes. Considering this point as settled for the time being, let us proceed to investigate the insurance expenses.

Here, again, we are fortunate in being able to refer to the official reports of a class of corporations doing nearly, if not quite pure insurance.

The assessment societies, outside of the fraternal and benevolent, reporting in 1889 to the insurance commissioner of Massachusetts, show outstanding risks amounting to $733,515,366. Losses to the amount of $7,270,238 were paid during the year at a cost for transacting the business of $2,403,053, which includes among other items "agency expenses and commissions," which amount to about $1,203,000, or 17 per cent. of the cost value of the insurance actually done. It would seem as if an allowance of 20 per cent. would be a liberal one in the case of the regular companies, which surely have as good facilities for doing business as the assessment societies.