Choosing a Life Policy
LIFE assurance policies are issued in great variety ; indeed, the wide choice offered is apt to bewilder the man considering the question of effecting an assurance on his life. These various plans of assurance are not produced haphazardly or capriciously ; each is designed to serve a particular purpose and to serve that purpose better than any other type. A life policy is a contract either for life or for a long period of years, and once entered into cannot be changed without loss to the policyholder. It is therefore important that the right kind of policy should be chosen at the start. The selection of the type of policy should precede the selection of the office with which the business is to be placed, as some offices excel in one class of policy and other offices in another class of policy.
The difficulty of selection is increased by the fact that the average proposer usually has no clear notions of his own requirements. If he seeks professional guidance he is disinclined to disclose his private affairs, which should govern the choice of a policy. The majority of persons who assure are persuaded to do so by an assurance official who suggests a policy he thinks will be attractive. The fullest benefit of assurance can be derived only from the policy best adapted to one's individual needs. The first thing to do is to think out what are one's needs and the order of their importance.
PURPOSE OF LIFE ASSURANCE.
The original and principal purpose of life assurance is to provide against the financial consequences of death, and it fulfils this function better than any other and better than it can be done in any other way. Where the circumstances are such that the sole requirement is the provision of a sum of money at death, a whole life policy should be chosen. A whole life policy would be specially suitable for a man who wished to make pro- vision for the payment of death duties in order that his estate might pass undiminished to his successors, or for one with a life interest in property passing at his death to others than his dependants, or for a public official or other person with an adequate pension guaran- teed on retirement, but whose wife and children are unprovided for in the event of his death.
Premiums can be paid in one of three ways—by a single payment, by periodical payments for a fixed term of years, or by periodical payments throughout the whole of the life assured. The last-named method would be the most appropriate in the cases of the man wishing to provide for estate duties and of the one with a life interest, because, broadly speaking, their incomes are permanent and independent of their own exertions, leaving no doubt about ability to 'pay future premiums. The annual cost would be less, as premiums payable throughout life are lower than by any other method, and the assurance would therefore be secured at the least sacrifice of income.
SINGLE PREMIUM POLICIES.
One may find oneself at the end of a year with a surplus of unexpended income, and this surplus may be used, by means of a single premium policy, for making provision for the future or for supplementing other assurances. A single premium policy does not involve liability for the payment of further premiums. Odd or chance suns can be set asidein this manner to produce specified sums at a specified date or on the happening of a "specified contingency, without committing oneself to any fulther payment. The next point to be determined is whether or not the policy shall be of the class that is entitled to par- ticipate in the profits of the life-office, A larger premium is charged- to secure the right to participate than where that right is excluded.. It will be simple4 forthe intending asscirant to look at the matterin another way The same premium will assure a, larger certain sum • under the non-profit- plan than under • the with-profit plan, but under the with-profit plan the sum assured will gradaally increase by the addition Of bonuses until it exceeds the sum assured under the riori-proflt plan, and the longer the policy continues the greater will_be the excess. Thus, for the first few years the non-profit policy will give the greater aniciunt of assurance, and afterwards the with- profit policy. The period during which the non-profit policy gives the better result can be estimated with approximate accuracy, though it varies in each individual case. SHORT AND LONG TERM ENDOWMENTS.
The popular tendency is to choose short term endow- ments in rirefereifee" to "long tefin -endowments. This is to be regretted, because such policies considerably reduce the amount of death protection. If the main object is to make provision for old age the endowment should be timed to mature about the date when the provision will be required, that is, say, age sixty or sixty-five. Much larger sums can be assured at these ages for the same premium than at earlier ages, while the amount of death protection is only slightly inferior to whole life policies. If death protection is not required then the pure endowment policy or the deferred annuity policy should be considered, though careful account must be kept of the effect of the non-allowance of Income Tax rebate on these classes of policies. The right to share in the profits should be retained where the main object is old age provision, as this will almost certainly produce a larger sum on maturity than under the non- profit method. Generally speaking, it will be found advantageous to take out all endowments under the participating plan, though occasionally, where a definite sum has to be arranged for, as in connexion with house purchase, the non-participating endowment may be more convenient.
Practically all policies issued are variants of the types described above. The differences consist in altering the death protection and investment elements, increasing the one and decreasing the other, or vice versa. Two other kinds of policies may be briefly mentioned. What is called the convertible term policy enables a young man cheaply to provide a large amount of death pro- tection for a period of up. to ten years, and then, when lie may be better able to gauge his future, to convert into any class of policy desired. Now that buying on the instalment plan is so prevalent greater use is being made of decreasing assurances, that is, where the sum assured diminishes periodically. A mortgagor to a building society, for instance, can, for a small premium, assure his life for the amount and period of his out-
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