CHAPTER IX. LIFE INSURANCE.
LADIES do not take advantage of the system of life insurance to the extent one would expect, seeing the benefits it is capable of conferring upon themselves and their belongings; and as their indifference is no doubt, in many cases, owing to a want of knowledge of the subject, a chapter thereon may be useful.
Life insurance is an admirable system, devised, in all its ramifications, to provide against loss or damage through the various contingencies to which human nature is subject.
A simple life insurance is that by which a person may leave behind him a sum of money for the benefit of those who, during his life, have been dependent upon him. For example, a husband, whose income is entirely derived from his own exertions, desires to make some pro- vision for his wife and children in the event of his dying before them. At the age of thirty he may, by paying £25 a year to an Insurance Office, secure at his death, whenever it may happen, £1,000, for the benefit of his wife or chil- dren, or as he may direct by his will. In a way insurance is a kind of savings bank, but impos- ing an obligation on the part of the depositor to save a certain sum every year. In the case of the bank, the savings are optional, and cease at death; whereas by insurance, the return of a large sum is the result of the death of the com- pulsory depositor. If a person put by £25 every year and invested that sum in the Government Funds at 2 1/2 per cent., or deposited the same sum annually in a bank, at the same rate of interest, it would take him twenty-eight years to accumu- late £1,000, if he lived so long; whereas by an insurance on his life for the same amount, if he died a week after the first payment of £25 had been made, the £1,000 insured would be paid to his representatives. It might be said that if the person lived longer than the term of twenty- eight years and went on saving the £25 every year, he would in the end accumulate more than £1,000. This, however, is met by insuring in such manner that the insurance carries "profits," that is, additions made by the gains of the office from time to time. If insurance be made in this manner, for which a slightly higher rate of pre- mium is paid, it will be found that, however long a person might live, more would accrue at death by insurance than by saving.
There are in active existence so many insur- ance companies of good repute and undoubted stability that no difficulty need be experienced in making a judicious selection. Of course, the intelligent insurer would prefer an office whose system would best suit his own requirements. There are two kinds of Insurance Companies, one known as a "Mutual" office, in which all the profits which may be earned are periodically added to the amount insured, the other in the form of a Joint-Stock Company, in which a small proportion of the profits are distributed amongst the Shareholders and the remainder added to the Insurances. The Mutual Office dividing the whole of its profits amongst the insured would appear to be the more advantageous of the two, and undoubtedly it is, all other things being equal; but insurances may be effected which do not share in the profits, at lower rate of pre- mium, and in that case one system is as good as the other. The intending insurer would do well to obtain the prospectuses of several offices, which he can easily do by writing for them direct to the head office or by applying to the several agents of the companies who abound in all towns; and carefully compare one with another. It will be found, perhaps, that one office charges a less annual premium for an in- surance than another, but this may be compen- sated for by the latter declaring larger profits, or giving advantages in other ways. For instance, a certain "Mutual" office charges for an insur- ance of £1,000, on the death of a person begin- ning to insure at the age of thirty, a pre- mium of £26 16s. 8d. per annum, whereas a certain Joint-Stock Company's demand is only £24 14s. 3d.; but the advantages offered by the former in the shape of larger bonuses, though deferred, are greater, while the benefit of a less annual payment is of course immediate. Where the insurance is effected at the same age and for the same amount, but with no other benefit or profit prospectively than the bare amount, the premium in the former case is £21 4s. 2d., and in the latter £21 15s. 10d. There are good offices, however, where the premium charged is less than this.
There is at least one office which insures upon what is called the half-credit system. One-half the usual premium is paid for a certain term of years, and thereafter the full premium is charged. This may be useful in a case where a person wishes to insure while young and the premiums are low, and at the same time is desir- ous of deferring the full payment until his income is so improved that he can better afford it. This system is carried still further by an in- surer only paying half the premium during his lifetime, the other half being accumulated until his death, and then, with interest added, de- ducted from the amount payable in respect of the insurance policy.
Having chosen the insurance office or com- pany which best suits his purpose, the proposer applies to its nearest agent and makes known his desire to insure his life. A form containing printed queries somewhat like the following (though offices differ somewhat in details) will be placed before him and the blank spaces filled in either by the agent or himself.
————————————————————————————————————————————————————————————————- | PROPOSAL FOR LIFE ASSURANCE | |———————————————————————————————————————————————————————————————-| | | Full Name _____________________________________________________ | | | Profession or Occupation ______________________________________ | | 1. Life proposed to be Assured | Business Address ______________________________________________ | | | Residence _____________________________________________________ | | | Married or Single _____________________________________________ | | —————————————————————————————————————————————————————————| | 2. Age next Birthday ________ years. Born at _________________________________________________________ | | on the ___________________________ day of _______________ in the year 18_________ | | (Evidence to be produced.) | | —————————————————————————————————————————————————————————| | 3. Has he resided out of Europe? | | | If so, where, and for what period? | | | —————————————————————————————————————————————————————————| | 4. Is he, and has he always been, of sober and | | | temperate habits? | | | —————————————————————————————————————————————————————————| | 5. Has he had any serious illness or disease | | | tending to shorten life? | | | —————————————————————————————————————————————————————————| | 6. Has any near relative died of any hereditary| | | disease? | | | —————————————————————————————————————————————————————————| | 7. (1) Has a proposal to effect an Assurance on| | | his life ever been declined? |_________________________________________________________________| | (2) Or accepted at more than the ordinary | | | rate? |_________________________________________________________________| | (3) If so, on how many occasions, and | | | when, and by what office or offices? | | | —————————————————————————————————————————————————————————| | 8. Is there any other circumstance which ought | | | to be communicated in order to enable the | | | Company to judge fairly of the risk? | | | —————————————————————————————————————————————————————————| |If the | Name __________________________________________________________ | |person has 9. (1) Who is his usual Medical Attendant? | Residence _____________________________________________________ | |never | Has known him ________________ years. | |required (2) When was he last in professional atten- | Date of Attendance ____________________________________________ | |Medical | Ailment _______________________________________________________ | |attendance, —————————————————————————————————————————————————————————| |the fact | 1st Friend. | 2nd Friend. | |should be | | (if necessary: see marginal note to | |stated, and 10. Mention an intimate friend, who is not in- | | Question.) | |reference terested in this Assurance, to be referred | Name ____________________ | ___________________________________ | |given to to for information as to health and habits | Residence _______________ | ___________________________________ | |TWO friends, of life | Profession or | | |in answer to | Occupation ____________ | ___________________________________ | |Question 10. | Has known him _____ years | Has known him _____ years. | | —————————————————————————————————————————————————————————| |If the | Name __________________________________________________________ | |Proposal be 11. Name, &c., of the person in whose favour | Profession or Occupation ______________________________________ | |upon the the Assurance is to be effected? | Business Address ______________________________________________ | |person's own | Residence _____________________________________________________ | |life these —————————————————————————————————————————————————————————| |enquiries 12. Is the pecuniary interest in the Life to be | | |need not be Assured, which is the object of this | | |answered. Assurance, to the full amount thereof? | | |———————————————————————————————————————————————————————————————-| | Sum to be Assured £_____________________________ With or without Profits? _____________________________________ | | Is the Policy to be for Life? __________________ Are the premiums to be payable Yearly? _______________________ | | I do hereby declare that the above statements are true, and that this Proposal and Declaration shall be the basis of | | the contract for effecting the above-mentioned Assurance, which Assurance is also conditional on the accuracy, in all | | respects, of the statement for the Medial Officer, made, or to be made, by the person whose life is proposed for Assurance. | | Date __________________________________ Signature of the Person in | | whose favour the Assur- _________________________________________________ | | Witness _______________________________ ance is to be effected. | | Address and Occupation ______________________________________ | ————————————————————————————————————————————————————————————————-
The proposer has now to undergo one other formality, disagreeable no doubt, but absolutely necessary, and that is the medical examination. This is done by the medical officer of the com- pany who has to certify that the proposer is free from any defect likely to shorten his natural life, and that he is sound "in wind and limb." Defi- ciency in the number of the latter is, however, not considered unsoundness, as a person with one arm, or one leg, or one eye may be just as good a "life" and therefore equally eligible for insurance with him who is perfect. All the en- quiries in the form are made by the Office and the expenses (including the doctor's fee) paid by the Company.
If the proposal is accepted, the proposer is informed of the fact and then pays his first pre- mium in advance, it may be a year's, or half-a- year's, or a quarter year's, at his own option, and he then becomes (subject to the rules of the particular company) the insured.
A few days subsequently a life policy will be sent to the insured. This is a document setting forth, in full, the terms of the agreement between the Company and the insured, and must be care- fully kept, in such wise that it may readily be discovered by the person for whose benefit it is ultimately intended. The writer once found amongst some old papers a life policy in the name of a man who had been dead for many years. On enquiry at the office it was found that the amount which was payable at his death had, by some neglect, never been claimed. The company of course at once paid the money, and a needy sister was very much benefited.
Thirty days' grace are usually allowed for subsequent payments of premium. It is custo- mary for insurance offices to forward to each policy holder a reminder, from one to four weeks before the periodical payments for premium become due, but the absence of any such notice will not be accepted as an excuse for non-pay- ment, and if the premium be not paid before the thirty days' grace allowed have expired, the policy becomes void. It may, however, be re- vived upon paying a fine and producing a medical certificate of health.
Should the proposal be declined the fact will be notified to the proposer, but he will not be informed of the reason. Proposals are rejected because of something wrong being discovered by the medical examiner, or because of intemperate habits, or that the history of his near relations in regard to health and longevity is unfavour- able; anything in short that indicated that the proposer will not, in all probability, live as long as a healthy man is expected to live is enough reason for declining to insure his life.
Insurances may be effected for a limited period, say for one, three, or five years, at about one half the premium charged for the whole term of life. If the insured dies within the period, the amount of the policy is paid, but the insurance ends with the periods of time agreed upon. This class of insurance is useful in many ways. For example: A person with a certain income for life is desir- ous of borrowing £500, to be repaid by annual instalments. There would be no difficulty in finding a lender, provided he could be sure of repayment; and this could be secured in this manner — the borrower would assign to the lender £100 a year of income for five years for the gra- dual discharge of the loan; the borrower's life would also be insured for five years and the Policy assigned to the lender. If the borrower lived for five years the loan would be paid out of the income. In the event of his death, it would be paid by means of the insurance money.
Another example: a child aged seventeen is entitled to a fortune, large or small, at the age of twenty-one, but meanwhile is wholly depen- dent on its mother who has only an annuity for her life. Should the mother die before the child becomes of age the latter would be left without the means of subsistence. In such a case the prudent mother would insure her own life for the four years which must elapse before the child could come into the fortune, for such a sum as would keep it from want, so that in case the mother died the insurance money would provide the means of living. The premium charged on this class of insurance is moderate; about £2 6s. for a person aged fifty; and the outlay by the mother could be subsequently repaid when the child was in a position to do so.
There are other special modes of insurance to prevent loss or damage in cases of remote risk; indeed almost any chance of loss through the possibility of something improbable occurring may be guarded against by insurance. For instance, a lady aged forty-five has been married for twenty years and has had no children. If she has a son her property will descend to him; if she dies childless it passes to a nephew. The chance of the lady having a son is extremely remote but still there is a possibility, and it is against loss by this possibility happening that the nephew takes out a policy of insurance for any reasonable amount, the premium charged being surprisingly small and payable in one sum down.
BONUSES.
It has been mentioned in a previous page that insurance has the advantage over the savings bank, no matter how long a person may live, and this is brought about by the operation of Bonuses, so called. These are the whole pro- fits in the case of a Mutual Company, and the larger proportion of the profits in the case of a Joint-Stock Company, which are distributed amongst the policy holders. At the end of every five years, in some cases seven, a valuation is made of all the property of the Company and on the other hand is ascertained what the company is liable for, present and prospective. The difference between the two constitutes the sur- plus or profits, assuming of course that the assets preponderate. This seems at first sight to be a very simple process, but in reality the most intricate calculations are necessary to arrive at mathematical accuracy; but this needs no further notice here. The bonus being declared, it may be dealt with in various ways.
1. — It may be added to the amount insured,
and so payable at death.
2. — It may be commuted for an immediate
payment in cash. (In this case the amount
will, of course, be less than in No. 1.)
3. — It may be applied in a permanent reduc-
tion of the future annual premiums, or a
proportionately larger reduction of these for
the next five or seven years, and in other
ways. Most offices granting every reason-
able facility for applying profits in any way
the insured may consider desirable.
Endowment Insurance. — This is a class of insurance by which an insurer may receive the amount of a policy himself during his life, at an age to be fixed at the time the insurance is effected. Should he die before reaching the age specified, the money is payable to his represen- tatives.
It may also be so arranged that instead of receiving the money at a certain age, he may be paid a fixed sum annually for the rest of his life thereafter.
For example — a person at the age of thirty may insure £1,000 to be paid to him on attain- ing the age of sixty. The annual premiums for insurances of this kind vary with different offices; but they can be effected at the age named, at about £28 10s. for the £1,000. If the person died before attaining the specified age, the money would be paid to his representatives; if he sur- vived, he could either receive the £1,000, or be granted an annuity for the remainder of his life of £92 a year. In the case of females the annuity would be £83 only, as they are supposed to live longer than males.
Non-forfeitable Policies. — This plan provides for the continuance of insurance upon the life of a policy holder should the insured from any cause be unable to keep up his premiums. The prin- ciple of this scheme ensures that, in considera- tion of the premiums already paid, a policy for a certain amount — less of course than that named in the original policy, which would be cancelled — would be granted freed from all future pay- ments in respect of premiums, and the insurance money of the new policy would be payable at death. For example — a person insures his life for £1,000 at the age of thirty, the annual pre- mium on which would be £25 a year. At the age of forty he finds himself unable any longer to pay the annual premium, but to avoid the loss of the £250 which he has paid during the ten years, he will surrender the old policy for £1,000 and will be granted a new one, say for half the amount, payable at death, and he will not be called upon to pay any further premiums.
Settlement Policies. — This class of policy is issued under the Married Women's Property Act (1882), whereby a trust can be created for the benefit of a wife or children of an insured person, the trustee being the Insurance Com- pany. The advantage of this is that such a policy does not constitute a part of the husband's estate or become subject to his debts, either whilst living or at his death, so that in the latter event the money is paid to the widow or children direct for their own use. A policy of this kind, if necessity should arise, could also be exchanged for a non-forfeitable policy in the manner before pointed out.
Endowments for Children. — A parent, by paying a premium of about £5 5s. annually, can secure to a child aged six a sum of £100, on its attain- ing the age of twenty-one. Should the child die before reaching that age, the money paid in pre- miums is not lost, for it is all returned to the parent without deduction.
By this means a marriage portion or outfit for a girl, or a start in business for a boy can be provided to any amount that may be desired.
Insurance on Joint Lives is another mode of insurance, very useful in particular cases. For example: a mother aged fifty has an income, for her life and no longer, of £300 a year, and she has a daughter aged twenty, who has no means of her own, present or prospective, being entirely dependent on her mother. The joint lives are insured for, say, £2,000, which would cost in premium £100 a year; the insurance money to be paid at the death of the first of the two. If the daughter died first the mother would get back, by the insurance money, possibly more than she had paid in premiums. If the mother died first, say at the age of seventy, by that time the daughter would have attained the age of forty, and the £2,000 would be paid to her. With the money she might, if she so pleased, buy an annuity for life of £110 a year.
Insurance on the Longest of Two Lives, payable on the death of the survivor, is useful in cases where land or house property is held on lease, so that there may be no pecuniary loss when the lease expires. The rate of premium is in this case naturally less than where the insurance is to be paid on the earlier of the two deaths.
SURRENDERS.
If from any cause it is desired to give up a policy and discontinue paying any more pre- miums, the offices will pay to the insured what is called the surrender value of the policy, at the same time cancelling it and all its conditions. This surrender value may be roughly calculated at about 40 per cent. of the premiums paid, in a case were bonuses have been added to a policy, and about 33 per cent. of the premiums paid in a case where the bonuses have not been so applied. For example: a person has paid £25 a year in premiums for ten years — in all £250 — on a policy for £1,000, to which has been added £60 in the shape of bonuses. The surrender value in such a case would be £100. But if the insured had taken his bonuses in cash, or his policy did not carry profits, then the surrender value would be £82 10s. only.
Any insurance office will lend the insured, on the security of the policy, an amount of money not exceeding the surrender value, and the rate of interest is usually moderate.
In this case there would be no necessity to abandon the policy, which would be kept alive and increased by added bonuses as before.
FIRE INSURANCE.
This is a distinct branch of insurance business, the object being to compensate a person in case of pecuniary loss through the accidental burning of his property. By paying annually a com- paratively small amount in the shape of pre- mium, a person may insure that in case of the destruction by fire of such of his goods as may be specified in a fire policy, issued by the Insur- ance Company, he will be recouped their value. Nearly all the Fire Insurance offices are agreed in charging a certain rate of premium, which is called the tariff rate. For dwelling-houses built of brick or stone with slate or tile roof, the rate is only 1s. 6d. for every £100. For more hazard- ous buildings such as thatched houses, ware- houses, inns, shops, &c., the rates are higher, according to the nature of the risk. Household furniture and the other contents of a brick or stone house can be insured at various rates, or they may be included in one insurance with the house, when the rate would be 2s. per cent. for the whole.
It should be remembered that there is a limit, usually of 5 per cent., of the whole sum so in- sured, placed on any one work of art which may be destroyed.
For instance, a picture valued at £200 maybe burnt in a house which, with the contents, is insured for £2,000 If the picture were alone destroyed, the office would only compensate to the extent of £100, being 5 per cent. on the £2,000, the total amount of the insurance. Any particular picture or work of art may, however, be specially insured by itself.
Insurances should never be made for a greater sum than the value of the property insured, as it would be paying more premium for no purpose. The offices take good care that they pay no more than the actual value of the property destroyed, which they have the means of ascertaining with some degree of accuracy.
It has been found necessary to subject the insurance of farming stock to special conditions. A farmer having stock of the value, say, of £1,000, might reason in this way: "My ricks, implements, crops, &c., are situated widely apart, and it is difficult to imagine that all could be consumed in one and the same fire; therefore, I will insure the whole stock for £500 only, then I shall have to pay only half the amount in the premium I should be liable for in case I insured to the full value." The offices are, however, quite alive to this kind of reasoning, and frustrate the intention by inserting what is called the "average" clause in the policy, the effect of which is that in the event of a claim being made for loss by fire, only one half of the value would be made because only one half of the value of the stock was insured. Live stock, however, may be separately insured without the average clause, and animals killed by lightning are paid for if insured against loss by fire.
There are other offices which insure against loss by special contingencies, such as damage to glass houses, and cattle, and garden produce, by hailstorms; destruction of boilers by explosion, of plate glass, and from accident or disease affecting cattle. There are companies, too, which insure against accidents sustained by rail, road, or water, guaranteeing a specified sum in case of death, and compensation in case of injury. Also societies which take the place of sureties and guarantee an insurer against loss or default by anyone in his employ; and companies which undertake to make good any loss arising from burglary or larceny. In all cases, of course, the liability of the office is limited to a certain declared amount.