LIFE ASSURANCE FOR THE PROFESSIONAL MAN.
BY ALEXANDER WRIGHT.
IN these days of higt taxation, adequate life assurance has become equally necessary to the professional man as fire assurance is to the factory owner, and yet life assurance seems still to be classed by many as a virtue to be practised when possible rather than an essential safeguard. The factory owner does not look upon his fire premium as so much money lost, for he knows that he obtains value for the payment, but the professional man too often fails to apply business methods to his own private affairs. He tries to make -an estimate as to how much he can spare for life assurance, and takes out policies accordingly, instead of calculating how much life assurance cover he ought to have and then seeking means to obtain this amount. If this latter standpoint were adopted, there would undoubtedly be a big increase in the amount of life assurance written in every civilized country, and there would be less distress among the widows and dependents of profescianal _men In recent years the temptation to under insure has been encouraged by the popularity of the endowment assurance and the well-meaning efforts of many com- panies to meet the demand of their clients by proving that, under their particular tables, endowment assurance represents an investment at a moderate rate of interest and free life assurance in the meantime. But while the endowment assurance is the most popular form of life assurance policy at present, it is at the same time expen- sive, and there is no doubt that many men are under- insured because of their desire to make their savings give them their life assurance free of charge. This it is well nigh impossible for it to do in the case of the professional man dependent upon his earned income. If it becomes necessary to exercise economy in the matter of life assurance, such economy should be made not at the expense of the amount of the cover provided, but in the form of the policy. It may be very nice for the young professional man to have all his life assurance cover represented by endowment assurances maturing at a comfortably early age, thereby promising to secure him early retirement, but he should first consider the case of his dependents and decide what is the capital sum which would bring them in an income sufficient at all events to enable them to live in comparative comfort and to provide for the education of children. An endow- ment assurance with a good office is undoubtedly a very fine investment, but regarded as life assurance provision it is expensive. Even at so comparatively early an age as thirty next birthday, an annual premium to the amount of one- sixth of total income—the maximum proportion for which abatement of Income Tax can be claimed—will only provide a capital sum sufficient, when invested at five per cent. interest, to give the policy-holder's depen- dents about one-third of the former income of the bread- winner if the annual premium is sunk in a non-profit endowment assurance falling -due at age 60. This cal- culation is based upon rates quoted by an office which is noted for the lowness of its charges for non-profit assurances of all classes. If the policy were to be effected under " with-profits " tables, giving participation in bonuses, the immediate sum assured would be capable of yielding an annual income "of only some twenty-five per cent. of the policy-holder's former income. To give adequate protection to dependants it may generally be taken that life assurance provision will be required to an amount which will be capable of giving an income of at least one-half the policy-holder's own earned income, assuming that he is dependent in the first place entirely upon professional earnings which would cease at death. This can only be secured under cheaper classes of life assurance than the endowment policy if the premiums are not to exceed one-sixth of the income, and there are few professional men whose expenditure upon life assurance policies approaches this proportion of their total earnings.
At age 80 next birthday, one-sixth of total income will just about provide the necessary capital sum to give one- half that income when invested at 5 per cent.---a rather generous rate •to assume at the present moment—if it is sunk entirely in a whole life non-profit policy at the lowest rates published. But while the -whole life non- profit policy possesses the great advantage of 'cheapness, it carries the objection that should the professional man survive-until the need for-life assurance-shall perhaps have become diminished, his years of retirement may be bur- dened with responsibility for heavy premium payments, or he may be faced with the alternative of the sacrifice of a large part of his premium payments if he discontinues the policy.
It therefore becomes important to examine the question of the amount to be allowed by way of surrender value, a point which is too often overlooked by the proposer for life assurance. Most offices make a strong point in their publicity of the fact that they " guarantee their surren- der Values. But the amounts guaranteed may vary very considerably. Thus a guaranteed return of one-third of the premiums paid is fairly common. But one-third of the premiums is a very poor return when a policy has been many years'in force and the interest factor is ignored. Generally it will -be found that guaranteed surrender values are more generous when the company concerned furnishes tabular statements—sometimes endorsed upon the policy itself—of the amount of the surrender value from time to time, rather than a promise of a certain proportion of the premium. It is at the longer durations of policies that the generosity or otherwise of the guaran- teed surrender values becomes most pronounced. For example, the tabulated values quoted by an office of high standing give the policy-holder a return of nearly two- thirds of his premiums after the pokey has been in force for 30 years. This particular office is not specially favoured in its ability to give good surrender values by any particular circumstance, being an ordinary commis- sion paying office, though it happens to be a mutual " concern, that is to say, it has no shareholders. Another office, which pays no commission for new business, is able to guarantee surrender values on its non-profit policies after they have been 30 years in force to the extent of over 80 per cent. of the premiums paid.
In such a case as the foregoing the professional man need have little fear of embarking upon the whole-life non-profit contract if his real object is to secure adequate protection for his dependents.
But if, for any reason, there is a predilection in favour of an office which is not so" generous to policy-holders of long standing who may wish to discontinue their contracts later in life, it is possible to obtain practically the same result by a combination of a comparatively long-term endowment assurance with a " convertible term " policy, as it is sometimes called. This latter is a policy which ordinarily carries no surrender value, and only covers the policy-holder for a selected term running from five to 30 or 35 years, after which it expires altogether. But the assured has the valuable privilege of effecting a new policy at any time during the currency of the policy, until within five years of its expiry without further medical examination. The same amount of premium as would be required in the examples already given would roughly be capable of providing sums assured of equal amount in an endowment assurance maturing at age 65, and a convertible term policy for 25 years. Such an arrangement would give the policy-holder about 80 per cent. of his total premiums back on maturity of the en- dowment assurance, with the advantage that the con- vertible term policy would give him the option of taking out any other kind of policy which altered circumstances might suggest would be suitable for the later years of life. At the same time he would be securing the large immediate life assurance protection which should be the first 'consideration of all who require to make provision for their dependents out of current earnings.
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