EFFECT OF DEPRECIATION.
The influence of depreciation on bonuses is transient. Depreciation must be made good out of the profits available and the sum required for the purpose cannot be distributed, but the amount of the investment income is not affected; The sum appropriated for depreciation can itself be invested, thereby increasing future invest- ment income and consequently future bonuses. The real effect of depreciation is temporarily to reduce bonuses, but the loss is ultimately restored to policyholders by subsequent bonuses being higher than they would have been but for the interest derived from the investment of the sum reserved for depreciation. Loss is incurred Only by those whose policies become claims before the temporary reduction in the bonus has been recovered. Before passing from the subject of depreciation it may be pointed out that the depression which produces depreciation also produces profit of a kind for the life offices, though the cause and the nature of this profit are much to 1* regretted. Many policyholders will be forced by prevailing circumstances to surrender their policies. Surrender values are not calculated on too generous lines and yield the offices a profit. If surrender is necessitated by inability to pay the premium the sum should be borrowed from the office issuing the policy. By this means the assurance can be preserved. The loan can remain a permanent• charge against the policy and the interest regarded as a small addition to fhture premiums, though it is better to pay the debt as soon as possible. Total net investment income and its ratio to the life funds are the most important sources of bonus. If the book value of the investments be written down, the ratio of the income will be raised, and the higher the ratio the higher will be subsequent bonuses.
Previous page
