Insurance

WITH OR WITHOUT PROFITS I WAS explaining last week the reasons for a with-profit life policy in a first-class assurance company being a more attractive contract than non-participating assurance. For a large group of policy holders, this is unquestionably true, but there is something to be said on the other side. The rate of premium for non-profit policies is substantially less than for those which share in the surplus. Thus, if we take endowment assurance for £1,000 effected at age twenty-five, and payable at age sixty, or at death if previous, the rates of premium are £28 14s. 2d., and £21 5s. 10d. respectively. This means that for a premium of £100 a year we can obtain a policy that shares in the profits for £3,483, and a non-participating policy for I4,697, or about 35 per cent. more at the outset. Since, as I have previously explained, a large measure of protection for dependants is frequently a matter of great importance, these figures seem to constitute a substantial argument in favour of non-profit policies in certain cases. If we look more closely into the matter, we shall see that there is not much in this contention. The following table comparei the two :- 35-YEAR ENDOWMENT AssumArreE.

Age 25 at entry. Premium £100 a year.

Year. Sum Assured. Sum Assured. With Profits. Non-Profit. Loss. Cain.

£ £ £ £

1

3,560 4,697 1,137

10 4,329 4,697 368

13 4,618 4,697 79

14 4,723 4,697

26 20 5,381 4,697

684 30 6,687 4,697

1,990 35 7,454 4,697

2,757

It will he seen that after fourteen years the sum assured by the participating policy becomes greater than that on the non-profit plan at the same annual cost, and towards the end of the endowment period the superiority of the profit-sharing policy is very marked. We should also remember that the deaths at first are very few, and that out of 1,000 men assuring at age twenty-five, only about eighty-four will die in the first thirteen - years, so that nine hundred and sixteen people would gain by taking with-profit policies, most of them very considerably, while only eighty-four would incur losses by comparison with what they might have done. When the probabilities are so overwhelmingly in favour of with-profit assurance, it is a pity, as a general rule, to take anything else, provided we choose a life office with a large bonus-earning capacity. In these days bonuses are becoming exceedingly large, and it will probably be desirable to charge lower rates of premium for with-profit policies, so giving for a stated premium a larger amount of assurance at the outset and smaller bonuses in the future.

There are various ways in which this has been done. The Scottish Provident Institution has long worked a special system for whole-life policies under which the rates of premium arc not much higher than those usually charged for non-profit assurance. No bonuses at all are paid until such time as the premiuths, if accumulated at 4 per cent. compound interest, would amount to the sum assured. At the end of this period, a substantial bonus is given, and thereafter the policy shares in the surplus available for distribution.

Another plan provides a low rate of premium by discounting future bonuses and allowing this discounted value in reduction of premium from the outset. This plan also produces a rate of premium little in excess of that for non-profit policies. The system, however, usually provides that if the bonus declared is less than the bonus discounted, the policy holder has to. make good the difference. This is perfectly fair, but is ' apt to be misunderstood and to cause disappointinent. Thus, there are already ways in which low premiums for with-profit policies can be arrived at, and it may be that in no distant future we shall see many companies reducing their premiums for participating policies, and providing for smaller bonuses.

WILLIAM SCEICOLING.