EQUITY IN LIFE POLICY SURRENDERS 17'9 the .Effifor of ,the
SPECTATOR.] Sua, Will you permit me to comment briefly upon what I think to be a misleading and indeed a quite inaccurate suggestion in the article on " Equity in Life Policy Sur- renders " published in the Spectator of October 9th. The writer in referring to the contention that whole, of life assurance is better for the average man than endowment assurance—and .4 thoroughly agree—goes on to say that the, force of the contention rests on the assumption that the amount payable on surrender will approximate to what would have been due on an endowment policy at a similar premium, but (italics mine) this is not likely to be realized unless the amount is calculated on fair lines.
The simple facts are (1) that the contention, as advanced by competent persons, never rests upon the assumption stated but is based entirely upon the consideration that Air a given outlay the sum assured by a whole of life policy is greater (often very much greater) than that by an endow- ment assurance, Consequently the essential and unique protective element in fife assurance is more developed hi the whole of life policy s (2) that it Is Impossible to give the same cash surrender value under a whole of life policy as that obtained under an endowment assurance (both having been effected at the same time and carrying identical premiums) because the proportion of premiums absorbed in meeting current risk in respect of the greater sum assured by the whole of life policy is larger than that required for the other contract, One simple example—all figures being based on the same table of mortality and interest and free from any disturbance on account of additions for expenses and bonuses, &e.—shows this quite clearly :— ANNUAL PREMIUM £10 PAID FOR 80 YEARS.
I. Total premiums paid„ £800 2. Sums assured by whole of life policy • : £835
Mathematical cash value of policy -at end of 80 •
years • • • • .. 2271
3. Sum assured by 80 years endowment assurance Mathematical cash value of policy at end of 80 yearsksia 4. Percentage of cash value to premiums paid — 2 90 8 144
The point to which I have thus ventured to call attention is one of fundamental importance, since, without a right understanding of it, life assurance becomes to the layman an insoluble and often a suspicious puzzle.—I am, Sir, &c., F. I. A,
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