Your Life Assurances
ICIRE people are surrendering their life policies nowadays than normal times. Whether these additional surrenders are ctated by necessity or result from considered action there no means of knowing. In all probability the former reason Perated in the majority of cases, though in these days when 0 many once-promising investments have sadly depreciated value- not a few people have been asking whether their life hetes are as good as they were as a means of saving money. it worth continuing to pay premiums in times when increased 'anon has made their burden heavier, in return for a benefit t some future date?
To such questions the ordinary man does not find it easy o obtain a satisfactory answer, nor, if he thinks he had better urrender his policy, either to get money or to relieve his ture domestic budgets of their annual charge for life insur- e premiums, do I consider that the life offices are always s helpful as they might be in giving advice by pointing out ernative methods of meeting difficulties or even suggesting at his life policies carry advantages which he would be most raise to sacrifice for the sake of retaining investments which o not possess them. WAR INFLUENCES First of all let me deal with the case of the nervous individual ho wonders whether the security of his policy has been ected by war conditions. To such fears I would reply that holder of a policy with any first class British life office need tertain the slightest qualms regarding the ability of such ces to meet all their engagements. Bonuses on with-profits ides may suffer, if only for a time, and largely because ertainties necessarily dictate even greater caution on the rt of life office managements in the matter of distributing ofits which are always a matter of estimation of the proba- ties of the future. But up to the present, war has not nously affected the position of our great life offices, despite fact that all their pre-war policies, and not a few of those d since the war, have covered war risk. At last week's cilia] meeting of the National Mutual Life Assurance Society was stated that while the total paid out in claims in 1940 was h the same as in the previous year, it included £14,000 in pect of war casualties. Total death claims came to 12,500, so that war claims so far have plainly caused. very e additional strain.
Higher income tax, of course, falls with particular severity on Insurance companies, since they pay tax on interest income, on profits, and interest income is a big item in revenue, rmally much in excess of profits.
In recognition of this, life offices have been relieved from full burden of the 8s. 6d. tax and let off with 75. 6d. e net rate of interest earned on their funds has therefore fallen as much as it would have done. The Scottish dows Fund, for instance, earned L3 13s. rd. per cent. in 40, or only 2S. 6d. per cent. less than in 1939, and a rate ch still shows a highly satisfactory margin over the rates umed in its calculations of policy liabilities.
ANOTHER SIDE TO THE PICTURE Lower interest rates and depreciation of security values, with savon of income from some securities, must necessarily e their influence on bonuses, but then life office bonuses C been on a most generous scale over the last twenty or Y years. Even now, net rates of interest income compare favourably with those which life offices were able to earn the beginning of the -century, and, if somewhat less pros- ous times are now in prospect, even war conditions have r compensations. For example, new business figures have 'ally fallen away. But new business is expensive and so, pc the extra costs in which companies have been involved ugh evacuation, extra staff, and allowances to men on ce, expense ratios are often substantially lower. Also, with money coming in, and more going out, through the ng number of endowment assurances now becoming due, problem of investing new money profitably is not so nent. The prosperity of a life office, it is well to ember. is not to be measured by the growth in its funds. quite possible for an office to show dwindling funds and to be growing in strength if its liabilities are declining at a er rate. The holder of a policy in such an office is a participant in an accumulated fund, often set out in the balance-sheet at far less than its real value, and a policyholder in this position should think twice before renouncing his rights in that fund.
A POLICY AS AN ASSET Far too many people look upon a life policy as a liability until premiums cease and the sum assured is paid. This view is entirely wrong. Rather should they consider it as in the nature of an accumulating investment on which at any time money may be borrowed if required, or the premium dis- continued, if circumstances make this necessary. If it is desired to use the policy to furnish income, money may be borrowed on it as required, until the policy falls due, provided it has been in force long enough to possess value, and money so borrowed and used as income is not liable to income tax. Last of all, the burden of the premium often appears greater than is really the case, for the rebate of income tax given in respect of life assurance premiums, though relatively less than it was formerly, has not been whittled down in proportion to the rise in the rate of the tax, so that up to 3s. 9d. of every Li of premium may be offset by rebate, and even more in the case of old policies. No other investment in fact can furnish an equal return on so high a degree of security and provide at the same time protection for the needs of dependants.
WAR-TIME POLICIES Though active service risks are now ruled out by most offices in respect of intending policy holders at the present time, there are many offices which have adopted the system of giving full cover to civilians against war risks without any extra charge, provided they take out policies under " with- profits " tables, that is, policies which are entitled to share in bonuses, when distributed. Present conditions and the neces- sity for acting cautiously with regard to such distributions may have deprived " with-profits " policies of some of their attrac- tions just now, but this concession in the matter of war risks may be considered as far outweighing any doubts in the bonus
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