LIFE ASSURANCE AND ITS DEVELOPMENT

BY GEORGE M. WYATT.

IN the first instance it will be of interest to examine as closely. as possible the total expenditure on_Life Assurance in the United Kingdom, as compared with the total popu- lation, and what amount of Insurance is provided per head by such expenditure. In order to utilize the latest Government Returns with reference to Life Assurance we must go back to the year 1923, but in some ways this is an advantage, as when dealing with the total population it is necessary to turn to the figures disclosed in the Census of 1921, and little adjustment (if any) would be requisite for variation in the population in the intervening two years. The approximate population of England, Scot- land and Ireland and the adjoining Islands at the 1921 Census was 47,000,000, the male population being approximately 22,500,000 out of the total.

Analysing these figures a little closer, we find that the male population over twenty-one years was some 16,000,000.

From the Life Assurance Companies' Returns as rendered to the Board of Trade for the year 1923 we find that there were some 4,400,000 Policies in force with the Ordinary Life offices insuring £1,182,000,000, and 51,500,000 Policies in force with the Industrial offices insuring £715,600,000. It will be seen that the total number of Policies in force is in excess of the total popu- lation, which is a very striking fact, although it must be borne in mind that in the Industrial Section -especially it is very customary for one man to hold several small policies in addition to insurances on the lives of his family. The combined figures show that the average amount insured per head of the population—men, women and children—works out at about £40.

The total premiums paid on Ordinary and Industrial Life Assurance amounted- in 1928 to £80,029,828, or approximately 30s. per head of the population.

THE AMOUNT OF. LIFE ASSURANCE IN FORCE—IS THIS SUFFICIENT ?

. The question arises whether sufficient Life Assurance cover is carried in this country, and we shall endeavour to prove that, the answer is decidedly in the negative. The total amount of Life Assurance carried is £1,900,000,000, whilst if the arguments to be deduced are sound the figures should be at least £6,400,000,000. For the purpose of establishing this theory it is necessary to refer to the Workmen's Compensation Acts, which, in addition to providing compensation for loss of wages in the event of accident arising out of employment also provides for compensation for the workman's dependents in the event of death by accident. This compensation is based on three years' earnings with a minimum of £200 and a maximum of £600 where there are dependents, according to the actual earnings of the deceased workman and the size of his family. It is evident that those who were responsible for framing the Act considered that these were the minimum amounts that were necessary as provision for a workman's dependents. Taking the mean figure of £400 for our purposes, and multiplying this by the total male population over twenty-one years—i.e., 16,000,000—we get a figure of 0,400,000,000 against actual insurance in force in 1923 of £1,900,000,000, that is less than one-third of the mini- mum. At present we have not dealt with the profes- sional and business man as distinct from the industrial worker, and it is quite clear therefore that the figure of £6,400,000,000, which is based on an insurance of £400 per head of the male population over twenty-one years must be considerably increased, as naturally the profes- sional and business classes require to cover larger amounts than the industrial worker.

THE CASE OF THE PROFESSIONAL MAN.

It is difficult to arrive at any definite conclusion as regards the professional and business classes in the absence of any definite statistics, but it is felt that the Income Tax Returns may be of some assistance. For the year 1922-23 the total number of persons assessed for Income Tax was 4,750,000 with gross income of £2,900,000,000, the net taxable income being assessed at £1,320,000,000. It is not possible to arrive at the exact proportion of the gross income derived from Investments as compared with personal earnings, but there is no doubt that a very substantial proportion of the gross income referred to is represented by personal earnings, and that Assurances of three times such yearly earnings would represent a very large figure indeed. That an insurance based on three years' earnings is by no means too high a figure is evident if we take the case of a professional man earning, say, £1,000 a year. An insurance of £3,000—that is three years' earnings—will only provide an income of about £150 per annum if invested in Trustee Securities, so that unless he dies possessed of other capital in addition to the amount carried by way of Life Assurance cover his de- pendents would not be any too well provided for. It is evident therefore that the conclusions arrived at are based on the very minimum amount of cover required, and that there is a tremendous field for education and development of Life Assurance in this country.

Whilst the onus of providing insurance, as a general rule, falls on the husband's shoulders, the matter is of the utmost importance to every wife, and the problem of sufficient Life Assurance concerns her most nearly.

NEW LIFE ASSURANCES—IS THE LEEWAY BEING MADE Up?

Again referring to the Government Returns of 1928, we find that the total number of new policies effected in the Ordinary Branch was 852,379 for a total sum assured of £98,710,659, and in the Industrial Branch 6,835,451 for sums assured of £139,462,987. The average amount insured under each policy in the Ordinary Branch was £280, and in the Industrial Branch was £20, and the average of the Ordinary and Industrial Branches com- bined was £33. From these figures it is quite evident that after taking into consideration Policies that have matured or lapsed during the year the shortage in the mini- mum of Life Assurance required is being made up very slowly and that there must still be a large number of people who are very much under-insured or who carry no Life Assurance of any kind, and it is such persons who need educating by the Insurance Companies through the Press and by every other possible method.

The total Life Funds of British Companies in respect of Insurances effected in the United Kingdom at the end of 1923 amounted to £629,480,781 or about £15 per head of the total population. The total amount paid under policies in the way of claims and surrenders during the year in question amounted in round figures to some £52,000,000. It may be of interest to note that there are some 100 offices transacting Life business in the United Kingdom including a few foreign and colonial companies and the Government Return shows that in 1923 the premiums paid to Home Companies were £77,655,558, as compared with £2,374,265 paid to the Colonial and Foreign Com- panies transacting the business in this country. There is probably no form of business where mathe- matical knowledge is so scientifically applied and where the results obtained work out in the long run so accurately. Over a long period of years there has been a tendency to increased length of life, the benefits of which have accrued to successive Insurers in the way of lower rates and increased bonuses.

Another important side of Life business is the invest- ment policy of the respective companies and here some offices have been more successful than others and in consequence have been able to produce better results for their Policy-Holders. In this connexion however it should be added that the general investment policy of the Companies is as a whole on the prudent side, as must necessarily be the case with moneys which are in the nature of Trust Funds.

SOME STRIKING EXAMPLES OF THE PROTECTION AFFORDED BY LIFE ASSURANCE.

In order to impress the reader with the importance of the subject under review it has been necessary to quote figures in totals, and having got so far it is now proposed to come 'to individual cases of the benefits of Life Assurance first from the point of view of insurance protection in the case of early death and secondly as an investment where the Policy-Holder has lived until a ripe age or until the actual maturity of the policy at a fixed age. For the purpose special steps have been taken to secure authentic examples from the records of a number of the leading Offices and in Table A annexed are authentic cases of insured persons who have died within twelve months of taking out their policies. The table shows also where the information has been furnished, the actual premium paid and by deducting this from the Sum Assured the reader will in each case see what substantial advantages have accrued under the Policies. When collecting this information, exceptional cases have been quoted by the Companies which are well worthy of repetition. For example, in one case a man came to the- counter,' paid his first premium and on' leaving the Office fell down the steps and was killed. In another case a professional man who died as the result of an accident had during the preceding two years taken out Life Policies for upwards of £50,000. The premiums paid in this case would only represent a small fraction of the Sum Insured and the enormous benefit accruing is obvious. A distinguished engineer having an import- ant appointment as President of an International Com- mission insured his life for £10,000 for six months to protect his dependents and died within three months of the date of medical examination and his being passed as a first class Life.

THE LIFE POLICY AS AN INVESTMENT.

We have dealt above with the cases of early death, but there is another side to be considered and that is the benefits accruing from Life Assurance where the Assured is still living or has died at a ripe age. The following is an actual example of a Policy which was taken out in 1897, where Assured was still alive at January 1st, 1924 :- £ a. d

Original sum assured .. . • • .. 1,000 0 0 Bonus additions to 31/12/22 . .. 10 0 660

Bonus for year 1923 .. .. 0 0 41

Total sum assured at 1/1/24 .. 1,701 10 0 The yearly premium is .. 25 1 8 The total premiums paid to Dec. 1923 (26} years) .. 664 14 2

It will be noted that (a) the bonus additions are more than the premiums paid. (b) the Policy-Holder has been insured since the issue of the policy from £1,000 in the first year increasing year by year to £1,701 10s. as at January 1st, 1924. (c) the Bonus for 1923 was £41 being £15 8s. 4d. more than the premium paid for the year. At June 30th, 1924: (1) The cash value of the bonus additions was £373 15s. 7d. (2) The cash value of the policy and bonus additions was 1758 15s. (8) The loan available on security of the Policy was £678. (4) The Assured could if he so desired convert into a fully-paid policy of £1,263 free from all future premiums and entitled to participate in further-bonuses until maturity of the Policy. This is a fair example of the benefits accruing under a Life Policy. In the annexed statement, B, are set out examples of actual Policies which have been in force for a number of years and under which the Sum Assured has been substantially increased by bonus additions.

LIFE POLICIES TO MEET SPECIAL NEEDS.

There are, of course, many different schemes of Life Assurance to meet the special circumstances under which ASsurance is required and it may not be out of place to refer to some of these. For example, a Policy which is very attractive is that known as the Limited Payment Policy. This is a Whole Life Policy where the premiums cease at a definite age so that the Assured knows the maximum amount he will have to pay, at the outset. If for example a Whole Life Assurance is taken out, the assured may live to a great age and the premiums being payable throughout the whole of life may become an undue burden, especially in the case of a man who retires say, at the age of 60 or 65, and whose income may be reduced on retirement.

Under the Limited Payment policy the premiums would cease at the age selected, say 60, but on the other hand, if the Assurance is taken out on a With-Profit basis, the Policy will continue to be increased by the addition of profits, for the rest of life, and the following is an- example of such a Policy as compared with an Ordinary Whole Life Policy where the premiums are payable through the whole of life.

A POLICY Fon £1,000 WITH PnoFrrs.

Ordinary whole Premiums limited to Estimated Life Policy age 60. sum assured Total Total and Bonus Age next premiums birthday Annual premiums at age Annual paid to at entry. Premium. payable. 70 Premium. age 70 £ s. d. s. d. £ £ s. d. £ s. d..

25 .. 24 0 10 .. 841 9 2 .. 1900 .. 21 12 6 .. 973 2 6 35 .. 33 5 0 .. 831 5 0 .. 1700 .. 28 0 0 .. 980 0 0

It will be observed that the Life Assured who com- menced at age 25 under the Limited Payment Scheme has paid a total of 2841 9s. 2d., and has no more payments to make, whilst if he had adopted the scheme of payments throughout life he would at age 70 have paid £973 2s. 6d., and would still be liable to pay the annual premium of £21 12s. 6d. so long as he lived.

DEATH DUTIES AND LIFE ASSURANCE.

Another instance where Life Assurance is of extreme use and where there is still room for a very large develop- ment, is in respect of Death Duties, which, unless some special provision is made, are a serious handicap to the Beneficiaries more especially if at the time they become payable, forced realization is necessary. This Duty is, of course, more especially a source of anxiety in con- nexion with estates which include landed property, or Stocks and Shares, which are not quoted on the Stock Exchange, and may be difficult to realize quickly, except at a substantial sacrifice. The following are examples of the annual cost of provision for estate duty by means of life assurance in the case of an eligible life aged 40 years next birthday. It should be remarked that the annual cost is substantially reduced by certain abatements which can be claimed in respect of Income Tax.

Estate duty payable Yearly premium sub being the amount jest to abatement for which the of income tax for policy should be Estimated non-participating value of estate. effected. policy.

s. d.

20,000 1,600 . • 41 12 0 50,000 100,000 197;0009g 182 0 0 494 0 0 500,000 135,000 3,510 0 0 290,000 1,000,000 . • • • 7,540 0 0

It is of interest to note that during the discussion of Sir William Harcourt's Budget of 1894 by which death duties were first imposed, both the author of that Budget and Mr. Goschen strongly advocated life assurance as a method of providing for Death Duties. The course of events since that time has' served to emphasize the advantages that life assurance affords in this matter.

There are on record a number of cases where large estates have changed hands several times in a very short period owing to -death with the ' result that through the quick recurrence of estate duties, the property has been absolutely crippled, and it is in such a case that the Life Policy would have saved the situation. Another policy which is growing in favour is the child's optional policy. If such a policy is effected in the early years of a child's life (and such a policy can be dated back to date of birth) the eventual sum payable in relation to the premium may be very large indeed, for example, under a policy issued by one of the leading Companies, by paying £10 per annum, the father is able to put his son in the position to insure his life for a stun which may be as large as £1,772 with the right to participate in profits. This applies to the case where a Policy is effected at birth and the options are taken at age 25. Instead of the old-fashioned silver mug a godparent can endow his godchild with one of these Policies and such presents are by no means uncommon. The way in which the burden of Insurance may be lightened by this class of policy for young married people who arc beginning to make their way in the world on a small income, is one which would appear to be well worthy of wider publicity than it has received.

Space does not allow of this article dealing with all the innumerable schemes of Life. Assurance which have been invented by the actuaries to meet the demands of each individual, such as the policy under which reduced premiums are payable during the first five or ten years, thus enabling a man to take the maximum amount of Assurance at a minimum cost whilst establishing himself in a profession or building up a business, &c., &c. It is felt, however, that anyone who reads this article will have conceived that the subject appeals to all thinking men and that there is ample room for a very large development of Life Assurance business in the future.

TABLE A.

ExAMPLES ov CLAIMS IN FIRST YEAR or ASSURANCE.

Age.

20 21 23 23 24 • • 25 • • 25 • • 26 • • 27 • • 28 • • 29 ..

30 ..

30 ..

30 . • 32 • • 32 • • 33 33 • • 34 • • 35 ..

36 ..

36 • •

37 .• 37 ••

38 •• -• 40

40 • •

41 41 41 42

43 • • 43

• • 46 • •

46

• •

46 • •

46

• •

47

• •

47

• • 47 • • 48 • • 50 • • 50 • • 50 • • Sum Assured.

£ a.

200 0 20,000 0 305 8 504 16 2,000 0 200 0 250 0 100 0 510 2 • 500 0 1,000 0 500 0 250 0 200 0 500 0 204 6 500 0 500 0 100 0 200. 0 10,000 0 500 0 1,015 0 203 12 1,500 0 511 14 1,000 0 306 0 1,000 0 500 0 1,000 0 300 0 214 0 1,000 0 200 0 5,300 0 1,000 0 300 0 255 5

500 0

200 0 103 3 10,000 0 100 0 ..

• • • • ..

• • • •

• • •• •• •• •• • • • • • • ••

Total Amount of Premium paid.

£ s. d.

7 10 10 Not Furnished Not Furnished 9 11 8 (2 Qtrs.) 55 11 8 11 5 6 7 6 11 6 5 2 20 4 2 17 5 0 35 0 0 17 2 11 5 10 5 3 9 4 18 0 0 8 3 0 13 1 8 10 0 0 5 1 0 11 12 2 299 3 4 5 15 0 (3 Qtrs.) Not Furnished 14 11 0 66 6 2 27 9 2 15 6 8 (1 Qtr.) 22 9 6 70 0 10 26 3 0 51 10 10 16 10 9 9 2 11 55 15 0 11 0 0 150 4 2 71 9 6 9 13 2 10 2 4

19 0 0

13 0 0 ' 7 18 1 508 0 0 12 10 8 • • ..

• • ..

...

• • • • • • • • ..

•• .• .•

• el

00 fp%

Cause of Death.

Typhoid.

Motor Cycle. ccident. Motor Cycle Accident. Motor Accident.

Landrys Paralysis. Typhoid Fever. Sarcoma of right lung. Ulcerative Colitis. Pneumonia. Peritonitis.

Accident.

Motor Cycle Accident. Lobar Pneumonia. Pneumonia.

Accident.

Influenza and Septic

Pneumonia.

Burns in Motor Cycle

Accident. Pneumonia. Accidentally, drowned Heat Apoplexy. Carcinoma Cerebri. Duodenal Ulcer.

Accident.

Influenza & Nephritis. Nephritis & Uraemia. Influenzal Meningitis. Bicycle Accident.

Acute Nephritis. • Accident.

Pneumonia.

Double Basal Pneu- monia and Encepha- litis.

Pneumonia.

Motor Accident. Pulmonary Embolism. Duodenal Ulcer. Acute Appendicitis.

Cerebral Haemorr- hage.

Cancer.

Bronchial Pneumonia.

Aneurism.

Cancer.

Angina Pectoris.

Accident. -

Carcinoma of OeS0- phagus. 52

• • 300 0 .. 19 7 0 ... Cancer.

52 • • 93 19

12 9 5 Pneumonia.

52 • • 1,500 0

...

113 2 0 .. Carbuncle.

53

300 0

15 19 6 Cancer.

56 ,• 500 0 .. 25 0 0 Encephalitis Leth- argies.

56

20,000 0 .. 1,012 0 0 Accident.

56

1,000 0 .. 62 0 0 - Acute Appendicitis.

57 • • 200 0 « 23 13 0

Bronchitis & Heart, Failure.

58

••

6,000 0 .... 416 0 0 ... Heart Disease TABLE B.

Claims AFTER LONG DURATION OF FoLICY WITH ACCUMMILATEF

BONUSES.

Sum Age Original Total Assured and at - sum Premiums Bonuses Death. Assured, Paid. at Death, - £ £ £ 60 ... 2,900 ... 1,553 .. 2,947 64 .. 500 .. 425 .. 768 65 .. 100 86 .. 149

68 .. 1,000 • . 898 .. 1,432

71 .. 500

520 .. 807

1100 .. 1 91

.. f

1135 500 .. 583 .. {804 75 ... 300 .. 270 .. 510 250 296 .... 614 76 ''''' 3,000 .. 3,321 .. 5,553

77 .. 10,000 12,344 .. 16,557

78 .. 200 245 .. 361 79 • • 1,000 1,216 .. 1,859 81 .. 100 141 .. 252

82 .. 1100 ,f 500 1127 {1,411 127 .. 254 83 .. 1,000 1,256 .. 2,045

86 ... 500 640 .. 1,068 86 .., ,f 500 f 558 .. { 1,045 1 200 1266 .. 439

87 . • 1,000 1,430 .. 1,925 88 .. 200 .. 252 .. 504

89 .. 100 .. 128 .. 188

NOTE.-In considering this Table, the fact must not be overlooked

that as from the first day each Policy was taken cut the Company was responsible to pay the sum assured in the event of death, with an increasing liability as bonuses were declared. In other words each Policy afforded substantial insurance protection during the whole of Life, in addition to its value as an investment.