Advantageous Life Assurance

'LOST of the anxieties of life arise from its uncertainties. The risks of the sea compass the mariner, trade risks meet the merchant and the personal risks of accident, sickness and death are common to all. But for the system of insurance such risks would 'reduce enterprise and affairs to a game of chance. Insurance minimizes or eliminates chance and -to that extent is the reverse of gambling. 'Gambling involves the exchange of certainty (the stake one holds) for an uncertainty, but by insurance, the chance or risk of a substantial loss is limited to the small loss of the premium. Even an insurance company eiinnot be said tobe gambling, in accepting risks, for it simply collects and averages them, so that in the aggregate. the element of chance, on their side, is practically eliminated. Were one to imagine-a Community in which all paid a Portion of their income to a central fund on the under- standing that they were to draw on that fund as their misfortunes arose, we should be picturing insurance in its most comprehensive sense. • Every sane man nowadays recognizes the object and benefit of insurance so far as the protection it offers against the *loss of 'property, but it is not so fully appre- ciated as the only sure and effective means of providing against losses at death. Indeed, apart from the industrial population, there are only 4,500,000 ordinary life policies, of an average amount of £250, on the books of ninety-one British life offices, and quite a proportion of these are in respect of lives resident in the Colonies.

Great Britain is very- much under insured from a life point of view as compared with Canada or the United States.

Self-insurance is a contradiction in terms, a fallacy, for whilst actuaries revel in estimating the proportion of a given number of persons which may be expected to die in a given year or period, " to say which individuals will constitute this proportion or whether one or another will -survive, is absolute)); impossible, and yet there are numbers of persons who are prepared to stake the financial position of their families on such an uncertainty. It is interesting to note that one of the first, mortality tables-framed for the purpose of measuring the probabilities of life 'and death was computed by ' the astronomer Halley and portrayed by Addison in No. 159 of 1711 of the Spectator in his " Vision of Mirza." Human life is allegorically depicted by him as a bridge of one hundred arches, through gaps in which persons passed away into _a _gulf beneath at intervals and in numbers corresponding to a mortality table, the arches after three score and ten being badly broken, an allusion to the biblical " limit of healthy life."

The primary and real object of life assurance is thus to afford protection against monetary loss, whether of income or capital, resulting from the death of a person, yet, in recent years there has been a tendency to advance its claims; not so much as the only means of making adequate family provision, but, on the ground that it is a good investment or a mearis of systematic saving.

These are indeed secondary benefits attaching to a life policy, but life assurance was never intended to be regarded as a system of• banking, nor purely of thrift. It is true that in computing the premiums for a life policy, interest accumulation is anticipated over the expected duration of life, and after allowing for sur- vivorship, possibly also a share in profits, and Income Tax rebate on premiums, the result under a policy may show quite a good return, but the true value of the policy is the protection it affords against losses by early death. The fact that three out of every four of the life policies effected to-day are on the endowment assurance plan and payable, during lifetime or earlier death shows that the possibility of receiving the sum assured at a given age, if that age is attained, is considered a greater advantage than providing the largest possible cover against death that the same premium will secure. When, and only when, the monetary loss which would be sustained by one's family in the event of death, whether of income or capital, has been fully covered should considerations of self advantage be directed to the more expensive types of policy. Nationally, and from a life assurance point of view, we are under-insured, and this is due not to the cost of life assurance but to the somewhat selfish desire to reap the policy during lifetime and that at the expense of our families. - The follOwing table gives the amount of life assurance that a premium of £50 per annum will command under different classes of assurance, and this shows at a glance the loss or sacrifice in family provision which results from the selection of policies payable during lifetime.

TABLE SHOWING TIM SUMS ASSURED WHICH AN ANNUAL PRE31104 OF £50 WILL SECURE UNDER DIFFERENT TYPES. OF LIFE ASSURANCE POLICY.

Type of Policy.

Age at entry, Age at entry, 35. 40.

Sum Assured.

Sum

Assured.

£ £

(a) Whole Life •• •• •• 2,268 1,914 (6) Whole Life Premiums, limited to

30 payments . . .. — (c) Whole Life Premiums, limited to 25 payments .. . • • • • . (d) Whole Life Premiums, limited to 20 payments — — • •

2,030 1,872 1,657 1,770 1,648 1,470 (4) Endowment Assurance, 30 years 1,736 1,606 " 25 years 67) 20 years " II

1,481

1,156 1,385 1,118 PO St IP 15 years 841 825 The maximum benefit is secured by a straightforward Whole of Life Policy with premiums payable throughout life, but there is always a possibility under such a policy that the Assured may live to -a great age and yet still have to continue paying premiums. For this reason it would appear that a long term Ihirited payment policy is the most advantageous to a family man. His family is covered for the maximum amount, °Ter the greater period of hii life: He limits his liability in respect of premiums, and further, these cease to be payable at a time when he will probably be retiring. At the end of the period he is in possession of a fully paid up policy which is in effect an absolute reversion to the sum assured at his death which can be surrendered or sold, or left by will or otherwise dealt with as may be desired.

Comparing a Limited Payment Policy, with premiums ceasing after 80 years, with an Endowment Assurance Policy, which provides for the sum assured during life, it is seen from the above table that the value of the latter policy as a family provision is considerably reduced.

A 30 year Endowment Assurance on a life aged 85 costs £2 17s. 7d. per cent. per annum, a premium of £50 per annum assuring £1,786 at 65 or earlier death.

A 30 year Limited Payment Whole of Life Policy on the sanie life can be secured-at £2 9s. 8d. per cent., the same premium of £50 per annum assuring £2,080 at death or nearly £800 in excess of the–cover provided by an Endowment Assurance. What this amounts to is that by taking an Endowment Assurance the Assured is depriv- ing his estate in the event of his death within 80 years of £300. Life Assurance as such is being sacrificed for investment.

It is this anomaly that makes it so difficult to under- stand why so many persons will maintain that they cannot afford to take more than a small amount of Life Assurance —usually out of proportion to the loss of income which death will entail—and yet insist upon having a policy payable during lifetime, which as shown reduces the cover that could be obtained at the same cost.

In Canada and the U.S.A. the favourite policy is the Limited Payment Whole of Life contract, the payment of premiumsbeing restricted to the salary-earning period of life, and the sum assured being payable at death by instalments spread over 15 or 20 years, or the lifetime of a beneficiary, thus avoiding the need for the beneficiary having to find • an investment and risking her capital. Their choice of policy, as well as their nationally holding life assurance for double the amount per head of popula- tion held in Great Britain, shows a marked degree of discrimination and responsibility. A Limited Payment policy is the only type of policy which (1) Assures the maximum 'cover against death.

(2) Limits one's liability in- respect of the number of premiums. (8) Provides an immediate estate of the face value of the policy directly the first premium is paid, and soon becomes (4) A valuable collateral security if required for business purposes. If effected with profits," although -this would entail a smaller sum assured at the outset, such a policy increases from year to year even after the assured has paid up the required number of premiums. In most cases a Whole of Life Assurance by a Limited Number of Premiums is therefore the most advantageous form of Life Assurance that . can be selected.

HAROLD DOUGHARTY, F.C.I.S., F,C.I.L