A Triple Problem
THREE problems confront the married man with little or no capital, namely : Provision for his old age, and, in the event of his death, provision for his widow and children. The problems are inter-related but not identical. They are not all likely to arise, and those that do will be in varying degrees of intensity. The crux of the difficulty lies in the impossibility of foreseeing which of the contingencies will happen and in what combination. Preparation must accordingly be made for every occasion. A comprehensive solution would be a single endowment life assurance for a sum sufficiently large to meet all requirements. Reduced to its elements, the problem is really to provide income for periods which are not determinable in advance. In these days of low interest rates an annual income of more than £35 cannot safely be counted upon in respect of each £1,000 of capital. The premium for a policy big enough to cover all eventualities would be prohibitive.
The reason is the large margin that must be allowed and may never be used. In course of time the children will grow up, and, if the father be then alive, the accumu- - lation of capital for their special benefit will have proved to be unnecessary. The duration of their dependency is capable of estimation. Whether and to what extent it will continue beyond the life of the parent is the un- certain factor. To the person concerned the question seems unanswerable, but the actuary can offer- him aid. The chances are calculable and .a plan has been evolved furnishing the desired protection. This plan is generally referred to as the. `.` family income benefit," and can be obtained in connexion with any form of life assurance policy. The word " income " is employed for convenience. From the life assurance point of view the payments partake more of a capital nature. Certain fixed sums are agreed beforehand to be paid in certain circumstances at intervals up to a fixed date. To pay for more than is wanted is to waste premium which could be advantageously employed in increasing the provision for the widow or for old age. For technical reasons it is impracticable to issue the income benefit as a separate contract, or, at least, in a form appealing to the public, but it can be obtained in a variety of forms coupled with any kind of new ordinary life assurance policy. One or two offices are even prepared to grant it as an addition to-an existing policy. The extra premium over and- above the premium for the ordinary policy may sometimes be spread over the whole duration of the accompanying assurance instead of being confined to the period during which the income payments may run. Under this method part of the premium is in effect borrowed during the income period and repaid in the subsequent years of the policy's currency. The income payments being in the nature of capital sums, are not subject to income tax. Furthermore, in intestacies, whether the payments are capital or income will affect the distribution of the estate under the Administration of Estates Act, 1925. Because of this it is advisable for anyone effecting an income ;benefit policy either to make a will clearly- specifying hii intentions as to the disposi- tion of the policy moneys, or to have the policy issued in a special way, upon which the offices will be pleased to advise him.
A common clause in wills reserves the income of the estate for a certain person. Under this clause the so- called income payments could not be paid to the person thus specified and the intentions of the testator in effecting the assurance might therefore be defeated. All that trustees could do in such circumstances would be to commute the income payments for cash and to pay only the interest on the sum thus realized to the person desig- nated by will to receive the income of the estate.
One way to avoid the difficulty would be to have the policy issued in the name of the person for whose benefit it is intended. If this person be the wife or husband of the life assured, rebate of income tax would still be allowed on the premiums. Control of the policy would be in the person in whose name it was issued.
If this course be not favoured, the policy could be made the subject of a special trust (in the drafting of which the capital nature of the income payments should be kept carefully in mind), or it could be taken out under the Married- Women's Property Act. - The latter procedure is simple, but the Act only applieS to wife or children or wife and children. If the policy be expressed as for the benefit of the wife designated byname it will form part of her estate should she predecease the husband and cannot be dealt with without her consent. Freedom of action in dealing with the policy, and at the same time preserving it from possible claiins of the husband's creditors, can only be retained by a specially .drawn wording. A simple form of nomination has been introduced by the life offices which should meet the requirements of most persons. The policy is declared to be held by the assur- ance company upon trust for the benefit of the person or persons who- may be -nominated by the life assured. If no effective nomination exist on the death of the life assured the policy is held upon trust by the assurance office for the benefit of the surviving wife, and should there be no widow the policy money falls into the de- ceased's estate.
A special clause reserves, to the life assured the power at any time to borrow money upon the security of or to surrender the policy for his own exclusive use and benefit. The insertion of this clause, if required, would seem to remove the policy from immunity against the claims of the creditors of the life assured. Special con- siderations also apply if the life as-sured dies domiciled
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