Chapter 12: Principles of Insurance

REFERENCES.

_Gephart, W. F._, Principles of insurance. 1913.

_Gephart, W. F._, Insurance and the state. 1913.

_Huebner, S. S._, Life insurance. 1915.

_Huebner, S. S._, Property insurance. 1913.

_Statistical Abstract of the United States._

_Valgren, V. N._, Farmers' mutual fire insurance in Minnesota.
Q. J. E., 25: 387-396. 1910-1911.

_Willet, A. H._, Economic theory of risk and insurance. 1901.

_Zartman, L. W._ (Ed.), Fire insurance. Ed., 1915.

_Zartman, L. W._ (Ed.), Life insurance. Ed., 1915.

QUESTIONS.

1. What are the conditions of economically sound insurance? Give at
least two examples.

2. What is the essential economic difference between gambling and
insurance?

3. Give examples showing the difference between a gambling house and
an insurance company?

4. Investors in Russian bonds are said to take out policies of
insurance payable to themselves in the event of the Czar's death,
their object being to guard themselves against loss by the
depreciation of their Russian securities in case of political
disturbances that might emerge upon a change of rulers.

(a) Do you regard such insurance as gambling or legitimate speculation
from the standpoint of either insurer or insured?

(b) Do you regard the issue of such policies on the part of the
insurance companies as "sound"?

5. Ought lotteries to be permitted by law?

6. Suppose 1,000 owners of 1,000 buildings worth $7,000 each wish to
insure themselves against fire. If the risk for the class of buildings
involved in such that seven out of 1,000 burn each year, what annual
payment from each owner would be necessary to insure all against total
loss--expenses of management, interest, etc., being ignored? (F. M.
Taylor.)

7. Suppose that a corporation owns 500 buildings worth $100,000 each;
that to insure against fire in an ordinary company would cost $250 for
each building; and that the corporation is convinced that by the
expenditure of $10,000 the fire loss can be reduced to an average of
one building every three years. Would it pay the corporation to insure
with some company? (F. M. Taylor.)