LIFE-INSURANCE PREMIUMS AND POLICIES. * THE inquiring spirit of the age,
which has put so many things "upon their trial," has not overlooked the important subject of life-insurance, both in its principles and practice. The rivalry of competition has for some years past turned attention to the constitution of the insurance com- e Eighth Annual Report of the Registrar-General of Births, Deaths, and Marriages, In England. Presented to both Houses of Parliament by command of her staiesty. Printed by Clowes and Sons.
Defects in the Practice of Life Assurance, and Suggestions for their Remedy ; with Observations on the Uses and Advantages of Life Assurance, and the Constitution of Offices. By Alexander Robertson, W.S., A.I.A.. Published by Orr and Co.
Life Assurance ; an Historical and Statistical Account of the Population, the Law of Mortality, and the different Systems of Life Assurance ; including the Validity acid Non-Validity of Life Policies : with Observations on Friendly Societies and Savings- Banks ; to which is added, a Review of Life Assurance, explanatory of the nature, advantages, and the various purposes to which it may be applied. By Alfred Burt, Esq., Secretary to a Life Office. Published by Wilson.
panic', so far at least as related to the division of the profits: Mutual insurance-offices, which divide all the profits amongst the insurers, boast their superiority over both the Proprietary and the Mixed, which retain the whole or a part of these profits: an advantage more apparent than real, seeing that the "participation" premiums are higher than those where only the sum actually insured for is paid. We think the Economic first called attention to the high rate of premiums charged on young lives; and various offices have more or less revised their tables since public attention has been directed to the subject of high rates, and insurers have been awakened to the difference between participating in the profits and allowing them all to go to the shareholders. Mr. Farr, the Deputy Registrar-General, in his annual reports, has considered the whole subject of premiums on life-insurance; but notwithstanding his exertions, the subject is still practically in a state of chaos. Some of the older and more "respectable" offices persist in using Dr. Price's North- ampton Tables, though their erroneous character has been frequently pointed out, and tables exist deduced from the experience of "seventeen London offices," which, based on "select" lives only, would seem to be the most proper data. Some few companies, we believe, have actually re- duced their premiums on young lives to what calculations on the general life of the country show to be mathematically required : other offices seem to follow no system at all; and the consequence is total confusion. The premium to insure 1001. on the life of a person aged twenty-varies from about 11. 12s. to 21. 4s.; and even where the offices profess to divide the profits, it ranges from 1/. 15s. to the larger sum.
Mr. Farr has continued the examination of these discrepancies in the Eighth Annual Report of the Registrar-General, by an elaborate and painstaking investigation of the value or expectation of life at Northampton, from actual data procured by means of his official position, And by a very curious antiquarian inquiry into the population of that town since the Conquest. Mr. Farr's object is to show that Dr. Prioe's assumption, that the population of Northampton had remained -stationary for nearly a century, was altogether unfounded ; and that his errors do not arise from an increase in the value of life, as has often been supposed,. but originated iudata essentially wrong. This view is pursued very curiously in-Mr. Earr's pallet; but whether his exposure of Dr. Price's errors will have any effect upon the numerous and respectable offices that use his tables, may be doubted. The following passage indi- cates the extent of the mietake i'while' it clearly and neatly explains the principles upon which annuities and life-insurances are conducted. " It is a law of nature, that of 11,650, or any other large number of persons born, a certain number die in every year of age; that any one may die at any time; that few or none survive a century and that the average durations of the lives of considerable numbers varying in different are the same in similar circum- stances. This is the ground upon which life annuities are granted. According to Price, the people of Northampton lila -on an average 25 years. Assuming this tp be true, and that the settle rule applies to mamtind generally, it'is evident that 25L, put at the birth of each - into a hoard or bank, at no interest, tierson would provide a life annuity al 1 ciatrary contributor. This would in fatt be equivalent, if- therThlkifiled Yr ears, to making a deposit at once of 25L, and 'taking 11. a year from it for each person until the deposit was exhausted: nor would the result be different though some received only 1, 2, or 3 Anneal pay- ments, and,others 70, 80, or 90 payments, provided that the average number of payments to all, one with another, were 25. If the annuitants lived on an aver- age only-20 years, there would be a surplus. If they all lived 37 years, the de- posit providing but 25 payments for each, it is evident that the annuity would cease, and leave the last 12 payments unmet; or, as it happens in nature that some die young and others attain old age; the former class would receive what they expected, an annuity for life; the latter class would be left without any pro- vision at the close of their career. A society which receives deposits thatwill pay 251., and finds itself, in line, called upon to pay 37L, will be insolvent, and ulti- mately fall to ruin. By Dr. Price's-Northampton table, if the money were put out at 3 per cent interest and nothing were: allowed for expenses, £12.270, or 424.5s. ad would be the value of an annuity of 11. for life: if people lived so long as 37 years, about £17.085, (t71. Is. 9d.) would provide the same annuity. . " Upon the other hand, if instead of a man making a deposit and taking a por- tion of it at the end of every year, a sum ealied-a premium, say IL, be paid at the beginning of every year, the aniennt be allowed to accumulate, and at his death a sum equal to the average sums Paid in-premiums, say 251., be granted to his representatives, it is equivalent to the operation of life-insurance, if there are ao expenses and the money bear no interest. An office which made its calcula- tions on the assumption that it would-reotive25 premiums while the insured lived, and actually received 20 or 37 premiums, would, in the former case, become insol- vent; in the latter, take 12prensiams more than it had a right to anticipate. The excess of premiums in a proprietary life-office would be profit. In a mutual insurance-office, if the members paid 32 premiums on an average, when they were expected to pay 28, and only the sum that 28 would provide were paid to the heirs of those who died in the first stage of its existence, a large surplus would be left for the thrice-fortunate survivors."
Mr. Farr investigates the subject in considerable detail ; but it will be sufficient to quote a few of the results, which the author throws into ,
the form of question and answer.
"What is the mean lifetime or the duration of life?—Answer, 37.57 years, or snarly 874 years in Northampton. Answer by False Table, 24 88 years.
" What is the after-lifetime at 20, or the average number of years that persons of 20 live after that age? Answer by True Table , 39 93, or nearly 40 years.
Answer by False Table 33.40, or nearly 33 years. " What is the after-lifetime at the age 50?-18-76 years by True Table, and 17-49 years by False Table."
a a • • • - * • "Edwin Gray, aged 20. desires to insure his life for 1,0001.: what annual pre- mium should he pay, leaving out of consideration any charge for expenses?
Answer by True Northampton Table £15 9 10 Answer by False Northampton Table 21 12 7 Answer by Northampton Table in common use 21 15 10
" What annual premium should James Just, aged 30, pay to insure 10,0001. at his death?
Answer by True Northampton Table £206 14 Answer by False Northampton Table 265 10
Answer by Dr. Price's Northampton Table 266 14 " What annual premium should Evan Lewis, aged 60, pay to-insure 1,0001. at
- death ? • •
Answer by True Northampton Table
- Answer by False Northampton Table . Answer by Dr. Price's Northampton Table £69 71 63 7 7 13 0 10 4."
It may be said that in life-insurance, at all events, these errors are not important, since the insurer gets back his surplus in the shape of *bonus. In practice; however, this is not done with accuracy. Some offices divide their profits every five years, others every seven, so that insurers dying is the intermediateyears lose their share : some offices have a mode oflump. ing their profits, which renders the amount of the bonus a matter of chance. And in fact the system is delusive. The great use of life-in. surance is to guard against a consequence of early death ; children being generally provided for in some way when a parent lives to advanced life. All that is taken from an insurer beyond what is necessary to cover the risk is an evil if he lives, by depriving him of capital that might have been useful, and an unfairness if he dies early, because his money goes to swell the bonuses of other people. Yet such is the disposition of man- kind, and their pleasure in being cheated, that, judged' from the ad- vertisements, the most attractive point to the public is a large bonus; though a little consideration would prove that these bonuses could only arise from too high a scale of premiums. At best it is merely returning money wrongfully taken.
But what Mr. Farr calls "the inveterate injustice running through the premiums, valuations, distribution of profits, and allocation of bonuses in offices that have used an erroneous table," is not nearly so great au evil as the legal invalidity of life-insurance policies ; to which Mr. Ro. bertson first, we think, fully directed public attention in the coarse of last autumn. The earlier unfairness was unavoidable. Society worked out the truth in life-insurances, as in other things, with trouble and turmoil and loss : nor was there any means of preventing the ine- quality; the whole subject was a mystery, and many people conceived that the " speculation" of life-insurance would be ruinous to the under- takers. The needlessly high rates that some offices still persist in charg- ing need not be paid, since others as safe if not so celebrated offer a lower premium ; and at worst, the insurer who pays twenty or thirty per cent more than is necessary gets some if not all of it back again in the form of bonus. Even if he lost the whole from ignorance or a partiality for some particular office, his premium would still secure the sum he bargained for. With the exception of a new company, called the London Indisputable, the policies of every office appear to be unsafe : that is to say, the directors, if they are so minded, may dispute them, with con- siderable legal chance of success. This power is attained by an artful use of the law of warranty in the wording of the policies, by a needless multiplication of questions to the insurer, and by the general stringency of the law of insurance.
The principle of the law of warranty is, that the importance or non- importanceof the facts ervarranted cannot be entered into, nor Whether the mistake was unintentional or committed bona fide. " If," says Lord Eldon, " there is a warranty, it is part of the contract that the matter is sul as it is represented to be; therefore the materiality or immalerml4fogmfaes4anthing. - "The obvious effect -of the doctrine of law, when applied to fins polleies, as this.) dootiments are now framed, is that although the company have -liad the -means of satisfying themselves, from Medical examinations, reports, and documents, and any other inquiry they may have chosen to make, that the life is insurable, and parties have for years regularly paid the premiums, the question there is an assurance or not still remains open as against the assured; whose policy may at any future time be questioned, upon the general ground that the life was not insurable at the time of effecting the assurance; or that the dis- closure of the circumstances then made was not complete; or that some fact, perhaps quite immaterial, contained in One or other of the several series,of ques- tions, had turned out on further inquiry to be different from that warranted.
The nature of the facts which become the subject of warranty, or which may even go to a jury on the question of material or immaterial, are numerous, minute, and in some cases liable to be conflicting. They are reported by three persons besides the insurer; who is bound by their representations, though he does not know what they are. .
"An intending insurer applies at the office, and fills up and signs the usual form of proposal for an assurance, containing generally a dozen or more ques- tions; all of which he answers conscientiously, and as correctly as he can. He refers the company, for further information, or rather it may be said for confir- mation of his own statements, to his &toter and to his friend. To the doctor and the friend the company despatch other sets of questions, in different forms, gene- rally more precise and searching than those submitted to the applicant himself. On these being received by the company, they are placed With the other papers connected with the case, but are not shown to the applicant; who is then ex- amined by the medical adviser, and called upon to answer a different series of questions, relating chiefly to past events, and involving an opinion as to the state of his health at all periods since infancy, and his recollections and notions as to the nature of the different ailments which he or any of his family or relatives may have had. " These several documents—viz. the proposal, the reports of the private medical adviser, and friend, the statement made to the company's medical adviser, and his report—generally contain upwards of two hundred interrogatories and answers; many of them being repetitions of the same question; some of them relating to matters of fact of which the parties are cognizant; most of them to circumstances of which the persons applied to can have obtained a knowledge only by hearsay or collateral evidence; and many of them are mere matters of opinion, as to which different persons may have different notions: and to the questions relating to such matters, it may be expected that the answers from the several persons, the proposer, the friend, the medical attendant, and the company's medical ex- aminer, will not all be in unison. These papers being completed, and the Fe- miam paid, the policy is granted, and the assurance is supposed to be complete.
"By the policy, the assured undertakes to pay the premium regularly, and the company to pay the stipulated sum three mouths after the death of the assured,— provided that every statement, declaration, and all testimonials and documents addressed to or deposited with the company in relation to the assurance, shall be found to be in all respects true.' It is further declared that these statements shall be held as warranted, and taken as the basis of the contracts and that the policy shall be void if any important information' has been omitted." It may be said, as it commonly is, that offices deal " liberally " with the public : but no man insuring his property, much more. his life, likes to be dependent on the, liberality of directors. Security against all and every risk is the object of insut era, especially of life-insurers, since the great purpose is to provide for a family when its s,upporter is ne more. Those, however, who have had dealings with insurance-corn panies, and listened to the unguarded and natural conversation of per- sons connected with them, rarely discover many traces of this boasted liberality, but more of a disposition to escape from their engagements than to fulfil them. The fact is that directors constantly do dispute policies, and that too when the points are not material, or their ma- teriality is not allowed to be inquired into. A complete synoptical view of the different actions tried by these life-companies is desirable and at- tainable: a list of the compromises into which they have forced parties, by the powers the policy clauses place in their hands, is more desirable, but not so attainable. Mr. Robertson, in his pamphlet on the Defects in the Practice of Life Assurance, has collected some of the actions and al- luded to the compromises. The resisting offices in the cases noticed by him are—
The Alfred, The Imperial, The Provident, The Atlas, The Law Life, The Standard Life, The Argus, The London Life The Union.
The Asylum, Association, The Hope, The Pronioter, In some cases the resistance appears so far justifiable that it was ob- vious the policy was forfeited by the terms, though it might be that the forfeiture did not turn upon the question of merits ; as when the London Life refused to pay an insurance effected by a creditor on the life of a debtor who went to North America, though his journey had nothing to do with his death. Others more distinctly illustrate the illiberal conduct of the companies or the state of law ; and of these we will take a few examples.
The facts were, that an agent of the Atlas Office, knowing that Everett pos- sessed property determinable on the death of House, applied to the former, and recommended him to effect an assurance on the life of House. Everett informed the agent that he had never seen House, and knew nothing of him. The agent undertook to make all the inquiries demanded by the office, and to manage the transaction; and did so. It turned out that House, a handsome, athletic, and healthy-looking person, referred the office to a person in the neighbourhood, whose -pills lie had sometimes taken, as his medical attendant,—and not to the surgeon who had attended him when at a distance from home, when he was suffering from fits of intoxication. It was held that House had made a misrepresentation; that Everett, who knew nothing of House, was bound by that gentleman's answers; and the office succeeded in getting quit of the claim.
We are not aware of any instance of a life-assurance case having been honour- ably tried,—that is, tried on its real merits only; and, considering the preponder- ating advantages which an office possesses, in the multitude of statements and re- ports, the absence of the best witness for the claimants, the assured himself, and in having the custody and control of the documentary evidence, it might be ex- pected that the company would fairly, openly, and honourably, inform their oppo- nents, before a trial took place, what were the real grounds of their objection to the claim, or their ' unfavourable impressions,' and peril their'success upon esta- blishing these obi tions. Such is not the practice. • * * As another ex- ample of the m e of pleading adopted by offices against their assured, take the case of Walters d the Alfred Life Company, tried at the Cbcfotd Circuitt.13th Angnst 1844. The office pleaded-1st, The general issuer cr., iprothersvords, they intimated that they would maintain any defence which theringermitrof their counsel might discover, and think convenient and useful. 2d, That the assured was afflicted with paralysis at the time he effected the assurance; a plea condem- natory of their own agent Anaxaedical adviser. 3,1,. That the habits of life Were intemperate ; ' a plea hurtful to the character of the deceased, and harrowing to the feelings of his surviving relatives,—and proved to have been untrue. 4th, That he had frequently consulted a medical man, although he said he had not. 5th, That the policy was effected by fraud, covin, and misrepresentation; a plea destructive to the good name of the deceased, and to the character of several per- sons who had been applied to by the office for information as to the life,—and proved to have been unfounded. 6th, That one Croft was interested in the policy, although his name was not inserted therein: the office might, with the same con- tempt of honour, have pleaded that the policy did not bear the proper Govern- ment stamp. 7th, That the policy was made in the name of Croft, but that he had no interest in the life of Walters: there does not appear to have been soy ob- jection to the name of Croft when he paid the premiums. The office was equally at fault in that plea, for the Jury gave a verdict in favour of the claimant; and their foreman remarked that the defence had entirely failed
ATLAS, HOPE, PROMOTER, UNION.
The Eagle Life Company were the plaintiffs, and the defendants were the Atlas Company, the Hope, the Promoter, and the Union Life Companies. These four companies refused to pay claims made against them on policies which they had respectively granted in favour of the Eagle Company, under the following cir- cumstances. Cockrane borrowed 12,0001. from the Eagle, on security of a con- tingent interest of 16,0001. The Eagle effected policies on Cockrane's life with five different offices: one of them paid the contents of their policy without dis- pute; and the other four declined doing so, on the ground that, at the time the assurances were effected, " Mr. Cockrane was afflicted with a disease which tended to shorten life; that his habits were those of a confirmed drunkard ; and that such circumstances had been concealed, whereby thepolicy became void." The Eagle had themselves assured on the life to the extent of 4,0001. After the evidence for the plaintiffs had been led, the defendants abandoned two of their pleas, and rested their defence upon the plea of concealment,—maintaining that the habits of life of Mr. Cockrane were known to the Eagle Office and concealed from the defendants, and that the policies had been thus fraudulently obtained. A number of witnesses were examined, to prove acts of Cockrane's intemperance, and if possible, to solve that question which has so often engaged judges, counsel, and juries in life-assurance cases, what is intemperance?—and to prove that a concealment of a material fact had occurred. The jury gave a verdict for the Plaintiffs, the Eagle Office.
The action was brought upon a policyof assurance effected on the 11th August 1837, for 2,0001., on the life of the Honourable H. G. Talbot, to whom the Rever- sionary Company had lent a arm of money. On Talbot's death, the Asylum re- tudiated the policy; and the question at issue between the parties was, whether Talbot's life at the date of the policy was moderate and temperate, or the reverse. The Asylum admitted that they had been made aware that Talbot had been in- temperate, and addicted to drunkenness prior to the time when the policy was ap- plied for; and on that account, a higher rate of premium than usual had been charged for the assurance; but they maintained, that the statements which they had received et the time of effecting the policy as to Mr. Talbot's then habits were unfounded. The jury decided in favour of defendants, thereby finding that the policy was void.
An object of Mr. Robertson, and also of Mr. Burt in his Life Assu- rance, is to advocate the system of the London Indisputable, by which "every policy issued by the company shall be indefeasible and india-
putable, and the fact of issuing the same shall be conclusive evidence of the validity of the policy." As a general rule, the system is a good one; since the company can always by a little trouble ascertain the facts con- nected with a bona-fide though negligent applicant, or baffle a common case of fraud. At the same time, to deprive an office of the right of re- sistance under all circumstances, seems going a long way. Cases of positive conspiracy have taken place to defraud insurance-offices; • and the original person who served for one of the characters of Sir Bulwer Lyt- ton's Lucretia poisoned a connexion whose life he had insured. In that case, however, it should be stated that a cautious office declined an in- surance, and their actuary threw out a warning hint to the subsequent victim : and perhaps actual conspiracy, or murder by an interested party, would vitiate a policy however guaranteed.
Mr. Burt's compilation has not the distinctive and original character of Mr. Farr's or Mr. Robertson's productions, but it is a useful and popular volume. It traces the history, explains the principles, enforces the advantages, and exhibits the statistics of life insurance. From these last it would appear, that gambling speculations have a much greater attraction for mankind than a steady investment to provide for a family ; unless it be, as Mr. Robertson intimates, that the state of the law, and the frequently litigious conduct of directors, deter many from insuring their lives. It would seem from Mr. Burt's account that not one in ten of those classes to whom life-insurance is applicable insure ; that the accu- mulations of the companies are about forty millions, and their engage- ments do not amount to more than about a hundred and twenty millions sterling. Large sums, no doubt ; but the calls paid up on railways in twenty-two months only (from January 1847 to October 1848) amounted to seventy-five millions ! Life-insurance, too, has been esta- blished for nearly a century and a half—the Amicable dating from 1706 : it is scarcely a quarter of a century since railways have been in vogue.
There is one point mooted in Mr. Burt's volume that deserves more consideration than it has yet received, and to which Mr. Farr's attention might be advantageously directed when he has finished his present course of inquiry,—we mean, the expectancy or value of to:select or ailing lives, such as many offices would reject altogether; and none would receive except at a very high prensiume The subject is arduous, on account of the difficulty and labour of procuring sufficient data : there is no doubt, however, but that there is an average in ailing lives or persons tainted with hereditary disease, ifs sufficient number of true cases could be got together ; and, though no one would think of insuring people in a well-developed disease, yet there is every probability that the value of what are called unsound liven is much greater than offices choose to assume. We know not whether the following is an extreme instance of the premiums asked in such cases, but it shows what offices are when they think they can clutch an advantage.
"A gentleman, aged 27, having occasion to effect a policy for 1,0001., made proposals to two established offices, and by both was rejected; not on the ground that he was labouring nudes any disease, but merely that it appeared from his written answers to the routine questions; ttiai predisposition or liability to disease mIsht be inferred, from arraccident he had met with, some years before. This, in the opinion of the medical, officers, placed his life with* the category of ' sound."
" This gentleman consequently applied to an alike" professing to receive dis- eased lives: although the medical examination declared him to be perfectly free from actual disease, the medical officer recommended the life to be taken at an advance on the usual premiums. The premium payable for a healthy life of that age was about 201., but an advance premium was demanded of 671., being the rate usually paid on the life of a person aged upwards of 60 years. At the great majority of existing offices this life would be uninsurable; and at those offices which world entertain the proposal the assured must pay a premium equal to that payable by a person aged 60: the premium, too, would be payable for life, unless the assured proved to the satisfaction of the assurance company that he was in such a state as probably to fittain his full expectancy of 36 years, which only would entitle him to any reduction in the premium. It is well known to all who are conversant with the details of life assurance business, that thousands of lives are annually rejected who are neither diseased nor have a strong tendency to disease, and which in many instances may be taken as average lives, or as lives but a small fraction below the average. The differ- rence in value between a 'declined life' and an ordinary life may be effectually covered by a uniform increased rate of premium. The advantages of assurances of this kind are evident from the fact that upwards of 23 per cent on the lives insured are annually rejected."