IN THE THIRTEEN MONTHS, July 1964 to July 1965, Best's Life Insurance stock index declined by 33.3 %, compared with an increase of 5.8% for the Dow Jones Industrial Average. This major decline in life insurance stocks occurred in the face of generally favorable business news. During 1964 life insurance sales rose 17.0%, insurance in force 9.5%, life premium income 6.4% and net investment income 7.8%. In view of these developments what then precipitated the sharp decline in life insurance stocks? In our opinion it was an increasing awareness of a change in life insurance profit margins. Whereas rising profit margins produced a faster rate of growth in profits than in insurance in force in the last decade, declining profit margins will cause a slower rate of growth in profits than in insurance in force in the next decade. Stated in other terms: in order for life insurance profits to grow as rapidly in the future as in the past, the volume of business added to insurance in force will have to grow more rapidly than in the past. Unfortunately, current analytical techniques for calculating "adjusted" life insurance earnings fail to recognize this fact. Unless due consideration is given to the question of profit margins, the value of an increased volume of business is indeterminate. The purpose of this article, therefore, is to discuss the significant factors relating to life insurance profit margins in order to place the relationship between volume and profits in better perspective.