BOOKS ON LIFE-ASSURANCE.
IT seems needless to tell the reader, that life-insurance means an un- dertaking to pay a certain sum on the death of an individual, in con- sideration of an annual premium payable till that event. By this method, persons having only a life-income, without opportunities of investing their savings, or firmness to use them if they had, can in the event of death provide for those dependent on them; and few of our readers, acquainted with affairs, but must have seen numerous instances of families maintained in comfort and respecta- bility by the wise provision of life-insurance, whilst others, ac- customed to luxury, have been abandoned to the privations, the degradation, and the temptations of poverty, through its culpable neglect by the head of a family.
The origin of life-assurance, by means of companies, dates no further back than the beginning of the last century ; the first charter of the Amicable Office being granted in 1706. So little were the principles of the subject then understood, that the office charged a fixed sum of 51. per cent. upon all ages it insured ; and, with some slight modifications, continued to do so up to 1807. The Amicable was at its outset, what it still continues, strictly a mutual assurance society ; every insurer participating in the profits, having a right to speak and vote upon all business, and being eligible to every office, without regard to the amount of his insurance—unless some alteration in this last point has lately taken place.
A few years after the foundation of the Amicable, three other offices were established, but on the proprietary system ; that is, certain persons subscribe a capital, guarantee the insurers against all loss, and take all the profits to themselves. The workings of the two modes will be best understood by an example. The re- presentatives of a shareholder in the Amicable, who died in a lucky year, (for they used to divide their profits after a very peculiar fashion,) might have received nearly 300/. for his insurance of 2001.; but a person insured with a proprietary company would get 2001. and no more. The three offices established soon after the Amicable were the Union, in 1714, the Royal Exchange, in 1720,, and the London Assurance, in 1721; all of which still exist, the Union and the London having lately altered their tables to give their insurers a share of the profits.
In 1762, the celebrated Equitable Society was established, but not by charter ; for so little had a knowledge of life-assurance ad- vanced in half a century, that the Crown Lawyers refused to grant one, on the ground of its being "unsafe." The Society was there- fore embodied by deed and enrolment; and in little more than fifty years, this " unsafe" speculation.had accumulated from its profits the enormous capital of eleven millions sterling; great part of which they divided amongst the earlier surviving insurers, so as to give the old policies bonuses varying from 2001. to 496/. for every 100/. insured.
The success of the Equitable seems to have turned the public attention to the subject; and before the close of the century, three other offices were established—the Westminster, in 1792, and the Palladium and the Pelican, both in 1797. Between 1800 and 1810, twelve more offices were started; and since that period, especially in times of active speculation, life-assurance offices have sprung up lie gourds—some to flourish, some to struggle on for daily exist- ence, others to break up ; but Mr. ST- CLAIR informs us, there are still about ninety in London and Edinburgh. The practical in- terest which this fact proves the subject to inspire its general con- sequence to every family of respectability, and die great import- ance of making a right choice of an office to insure in, induce us to say a few words on the broad principles of the subject.
Although nothing is more uncertain than the duration of a single Ii, nothing is more certain than the average duration of many lives. No-one could tell how long a man of twenty would lire, for in addi- tion to the infirmities of human nature there are all the accidents of life ; but the average duration of many lives of the age of twenty is capable of close computation. With persons in common health, the "expectation" of life is about 29 years ; in good health, up- wards of 33 years; and in what are called select lives, such as the older and long-established assurance-offices alone will deal with, this expectation will be still greater,—that is, although some may die very soon, and many before average "expectation," others will live so much longer as to make up for those who die early. The some rule applies to every other age : a good life at 40, for ex- ample' may expect to live 23 years; at 60, only 13+ years; at 70, the chance is lowered to 81 years; each successive year deducting something from the value, till at last it sinks to nothing in the eyes of an actuary. Strange as these calculations may seem to persons unused to such investigations, (and some people go so far as to fancy them impious and irreligious,) they are yet as certain as any law of nature ; or rather, they are the mere interpretation of a law of nature, more determined than any device of man or any human institution. "There is nothing in the commercial world," says Professor DE Mottos's, "which approaches even remotely to the security of a well-established and prudently-managed insurance- office."
The practice of life-assurance will readily be gathered from the principle on which it is based. By numbers joining together, the gain on those who live long covers the losses on those who die early ; and the natural price or premium for life-assurance is, such an annual percentage as, when improved at the common rate of interest, would praline 100l. and the proportionate expenses of management, at the end of the time which the person may expect to live. All offices, however, estimate the expectation of life at a shorter time than experience justifies, or, which is just the same, charge a higher premium than is requisite. Where this is only a moderate increase, it is very proper thus to guard against mischance, and "make assurance doubly sure" : nor is this addition to the natural price to be objected to when it is only to yield a moderate profit to a proprietary company. Experience, however, shows that a proprietor's capital is by no means necessary ; the premium of
t he insurers being adequate to meet all demands that can possibly be made, lithe business of the office is of sufficient extent. It was partly by means of high premiums that the Equitable amassed its enormous capital, and that some of the early proprietary companies added 200 and 300 percent. to the value of their shares; for though in those early periods great errors were committed, yet the errors were all in favour of the offices. The Amicable's equal premium, for example, of Si. per cent on all lives, or rather on all lives from 12 to 45 years, was greater than the majority of offices now require at 50; and its own modern tables only charge Si. on a life aged 51. Part of the large profits of the early offices' however, arose from other sources. Many policies were dropped by the insurers, from accident, carelessness, or inability to continue them ; the paid pre- miums on each of which were clear gain ; and the offices had a mo- nopoly in the buying up of policies. Nor must it be forgotten that the old offices flourished in profitable times, when "money was money." During the greater part of the Equitable's career, from /762 to 1816, we were at war ; and their annual income from high premiums was invested in the Funds at a low rate. That office, and other old offices, must often have bought stock at par, or be/ow it, to sell it at a gain of 20 or 30 per cent. But all these sources of profit are gone: every office has been compelled to revise its scale of premiums; the ignorance of insurers no longer furnishes a profit, and capital must be improved at a low rate of interest. Competition has further compelled most proprietary companies to divide their profits with the insurers, or where they retain the whole, to lower their premiums very considerably.
Competition, too, has introduced into the business a variety of' modes of effecting life-assurances, which are really baits for the necessitous or credulous, or partake of the nature of speculation in a subject which every prudent person would render as certain as possible. Some offer to lend money on the security of the policy ; some propose all kinds of scales for premiums, beginning with much less than the value of the sum to be insured, which is to be increased to much more than the value at a future period, or vice versa; some offer to take the premiums by half-yearly, quar- terly, nay monthly payments ; others, again, offer insurances on all kinds of contingencies—as making a man his own heir, and insur- ing him a certain sum if he live to a certain age, which may, or may not, (according to agreement,) be paid to his representatives if he die before the time. So various, indeed, are the schemes which some modern offices have put fbrward, and so attractive are they in appearance, that their concoctors would seem to have looked upon life-assurance as a musical theme, to be varied for the pleasure it would afford, instead of one of the gravest businesses of lifk, not to be undertaken without a distinct object.
A moment's reflection will show, that there is only one purpose to be accomplished by life-insurance; and there seem to be only three straightforward modes of effecting it.
1. By an insuranee on a persoii's entire life, to provide for those de- pendent upon him, let his death happen when it may.
2. By what are called short insurances, or an engagement to pay a certain sum on the death of a person if it occur within a given period. The chief use of this mode of insurance is to secure creditors; cases constantly arising where the debt will be paid at a future period if the debtor he alive : if he die in the interval, the office pays the sum insured; if he live, it has all the premiums as profit. 3. An insurance on two lives. A husband or wife, for example, may possess an income which expires at death : many persons are entitled to legacies on the decease of a person with a life-income : in such eases one life is insured against the other,—that is, if the legatee die before the tenant for life, he is paid the amount insured; if he prove the longest liver, the policy drops; the premiums, as in the case of No. 2, all belonging to the office. And these two classes of insurance are practically held to be very profitable ; though on what principle we do not perceive, except on that of overcharge, the offices calculating their premiums on bad lives and taking care to insure none but good.
Any other mode of assurance than these three, unless adopted on consideration to meet some peculiar case, seems of the nature of a scheme; and those offices which deal largely in tempting baits are to be avoided by prudent persons. No insurer can gain any advan- tage beyond that of having to pay the closest approximation to the natural price consistent with safety. All beyond this is money taken out of his pocket ; or if it be returned to him in the shape of bonus, it has perhaps subjected him to straits he needed not have undergone. A fraction below the natural price, no person would choose to risk ; for nothing can be surer than that an office doing business on such terms must end in insolvency.
Let every one then, meditating an insurance, fix two things in his mind,—first, cannot insure his life without paying a fair price for it ; second, any change from the regular forms, however at- tractive it may seem, is only a delusion and aninjury. The half- yearly or quarterly receipt of payments, though it may be unavoid- able in the case of the prudent poor, entails a greater expense on them by the greater trouble of management, and by the loss of in- terest on driblet payments. A condition to advance money on the policy is merely offering a temptation to borrow ; and if the loan be limited to enable a person to continue his premium, it only allures' him to insure for more than he can prudently undertake. A power to reduce the insurance, the value of the premiums already paid being taken into consideration, is a boon to a person with reduced means; and a plan adopted by the Britannia and some other modern offices, is also entitled to attention—the charging a lower rate of premium for a certain number of years, and then increasing it. Not that this is desirable when the primary object is to insure the whole life; for it is merely a change of mode, which the insurer must pay for : but if a short insurance be contemplated, it gives the insured the option of continuing it, when, had health deteriorated in the interval, he could not have effected a new in- surance. This is a plan which every office will eventually have to adopt, or lose a great part of their business in short insurances. There is no rarer quality than that of following out a principle to its legitimate conclusion, unless it be the firmness to act upon. the principle ; and both these qualities are wanting amongst the managers of insurance-offices. Directors and shareholders talk continually of justice—meaning mathematical equality, though inequality is the essential principle of their existence ; their fun- damental law being to make those who live long pay for those who die soon. Coordinate with this, and of a still larger kind, is the principle that life-assurance is intended to guard against the infirmities of our common nature, yet the conditions of all offices vitiate a policy where death takes place by suicide, duelling, or "the hands of justice." For upwards of a century the Amicable had no such clause, but FAUNTLEROY was insured in the office, and heavily. The principle had remained dormant and disregarded for above a hundred years, when men were hanged by dozens at a time,— which fact alone proved the little danger to be ap- prehended from it : but as soon as it was embodied in the hanging of a banker, the foolish and short-seeing were all agog. Meetings were called ; speeches made ; loose and perhaps imagined stories were told of losses arising from the laxity of the Society, and of some suicide who had left behind him a gratulating paper that he was insured in the Amicable. The result was the passing of a by-law, which vitiated the policy in the case of hanging or suicide, but the Directors are permitted to return a proportion of the premiums paid if the verdict be not "felo de se." The best answer to the necessity of this change was the prosperity of the Amicable before it was made : the iuutility of it will be apparent if we reflect, that an office which guarded the in- surer against the contingencies of his own nature was one likely to- attract all persons of caution and reflection : its hardship and inhumanity are obvious. "Of the uncertainties of our present state," says JOHNSON, "the most dreadful and alarming is the uncertain continuance of reason." Apprehended difficulties of a pecuniary kind are often an exciting cause of derangement ; and the life-assurance office comes in to aggravate the misery of a shocking and premature death, though its professed essence is to guard against the uncertainty of life. Many offices go the fraudu- lent length of retaining all the premiums that have been paid, even if they have exceeded the full amount of the insurance, Wei,
should strongly advise any one about to insure his life, to choose an office which returns part of the premium paid.
In speaking of the actual premiums demanded, we are treading upon delicate ground, from the variety of the charges made by various offices, and the difficulty of forming an accurate judgment on such a subject ; the greater caution and stringency of the older 'offices, for instance, requiring a lower premium to secure them, though they generally seem to charge a higher. This charge often is, and is mostly professed to be, only seeming; because the profits are returned to the assured, either by an (unsettled) payment at his death beyond the sum insured, a fixed increase to its amount made at stated periods during his life, a diminution of his annual premium, or the option of either of the last modes. These profits are a topic of great glorification to the offices which grant them, and a theme for triumphing over the pro- prietary companies. Great profits only prove, however, great overcharge in the first instance ; and though some over- charge is necessary for security, yet we must compare the scale of premiums before a decision can be come to. To take two old offices : the proprietary Pelican charges 1/. 16s. ld. for a life in its twentieth year, paying the 100/. and no more ; the mighty Equitable allows a share of its profits, after a certain time has elapsed and certain contingencies have occurred, (which actua- ries say leave but the chance of a boon,) but it charges V. 3s. 7d., or one-seventh more than the Pelican. We have taken these offices not for any invidious purpose, but to avoid the appearance of it ; the age and character of the Pelican leaving no doubt of its security, and the immense capital and prestige of the Equitable enabling it to set remark at defiance. A difference of some shil- lings per cent, in a premium, however, is of no consequence com- pared with security. If a person contemplating insurance has no means of making particular inquiries, the age of the office and the character of the directors will afford some general test. The amount of advertised capital is no criterion ; for in many cases it is nominal, not paid up,—a delusion which a vigorous and prac- tical Government would long since have put an end to by law. Of the volumes before us, Mr. ST. CLAIR'S Popular View qf Life Assurance is a short, clear, and compendious view of the subject, in its moral, arithmetical, and legal bearings ; assuming, and perhaps properly, great want of knowledge of the matter in his reader. His lists of the different offices, and of their features, especially of their premiums, are well displayed, and his historical sketch of them is sufficient. Mr. MILLAR'S Practical Introduction to Fire and Life Insurance is a much more elaborate and scientific work ; showing how to calculate the values of annuities, reversions, policies, &c. in as easy a way as such matters can be done; and containing tables of mortality, compound interest, &c. His book also contains a sketch of the constitution and character of each respectable office, perhaps even fuller than Mr. ST. CLAIR'S publication ; but it wants the tabular view of their premiums.