LECTURE ON LIFE INSURANCE.

Evening Star, Issue 3369, 6 December 1873, Page 2 (Supplement)

LECTURE ON LIFE INSURANCE.

BY MR T. F, M‘DONOGH, Sub-Commissioner Government Insurance. Department. Tli© subject of myiecture this evening is Life Assurance and Annuities. The question of Life Assurance has been prominently brought before the New Zealand public of late years by representatives of private Insurance Companies, and more recently by myself and other agents appointed under the New Zealand Government Life Assurance and Annuities Act, But I think you will agree with me, on reflection, that the subject has not received that amount of general attention which its importance demands. REASONS FOR INSURING. Because time is money. Brain and muscle are just as much value as houses and merchandise; they arc alike perishable —the latter by fire and the perils of the ocean, the former by accident and disease. What good reason, then, can be given for insuring the one that may not be urged with equal force for insuring the other ? i

Because families are the foundation and corner-stone of civilised society. The head of a family is bound by every Christian virtue and social duty to protect it and provide for it. In this way alone can the integrity ot the family system be preserved. The heads of families are the pilots who steer one generation into another, and the premature loss of the pilot is a loss. Why, then, should not the protection offered by life insurance be accepted! OBLIGATION TO PROVIDE FOR WIFE AND CHILDREN. Because in the economy of existence every true man, however far removed from sentimentalism, is impressed with a sacred obligation to provide for his wife and children. This ma} r ho the result of education and custom, or a development of a higher phase of the selfish principle, or it may be love ; at all events, it is a fact; and this fact is the most general stimulus to toil—whether mental or physical with which we meet. We may put it down, therefore, as a universal truth that man’s primary object in life is to provide for his family. Now, think of a dozen acquaintances who have died between the ages ot 2«) and 50, and count on your fingers the number who have attained this object. It will be small ; each of them could hare reached it had they understood and accepted life insurance. If a man is earning L'3oo a year, whether as a mechanic, a farmer, a book-keeper, a trader, a physician, a banker, or a lawyer, he can better afford to live on L2BO, and invest the remainder in a life policy, than his widow and orphans can live on nothing. This is self-evi-dent, and yet it is constantly ignored. If we admit that a man’s chief object is the welfare of his family, life assurance is the best security against failure in' that object. Labor is the true philosopher's stone, and the workshop the real LI Dorado. For one who acquires a fortune in a day, or a year, or five years, there are titty thousand who struggle for a living during a long life. The law is that one generation shall labor until another takes its place, and this applies to individuals. Those who break it by leading idle, shiftless lives, - suffer the penalty. But how many faithful, earnest workers fail to fulfil their destiny—to conduct their children safely to the threshold of independent life, or their lives to the harbor of rest 1 The bills of mortality will answer this question. If ninetynine white balls and one black one were placed in a box, and if to draw the black one were certain death, who could put his hand in without a quiver, or withdraw it without a quicker pulsation of the heart; and yet the risk of death would be no greater than a man in the very prime of life and health runs each year. To those, then, who have not provided for their families, life insurance is necessary. THE UNCERTAIN DURATION OF RICHES. Because the duration of riches is as uncertain as the duration of life. There are few business men who do not fail at one time or another. Take at random a score of men whom you have known in the heyday of business life and prosperity, and trace them to the sere and yellow leaf, and how many do you find in independent circumstances ? It is sad truth that even among the earnest and faithful class of merchants, few secure for themselves a comfortable living in the declining years of life. Nor is the application of this remark limited to business men alone ; lawyers, physicians, clergymen, mechanics, and even farmers, are subject to corresponding vicissitudes, and are overtaken by similar eventualities. Surely, in the light of such experience, common sense would suggest the making of some pro vision of an inalienable character for old age. The form of insurance known as Endowment enables us to do this in the easiest and surest manner, while, at the same time, it affords all the protection of a life policy during the active part of our career. For example, the annual premium on LSOO pure insurance is, at the age of 30, L10,2s fid. The policy is paid at death only. But for an additional annual premium of LG os the Government stipulate to pay the assurance when the assured roaches the age of 55 ; pr for an additional annual premium of L 3 11s on attaining the age of GO, and, of course, previously, in the event of his death. Such a policy is not only a protection to one’s family during the busy part of life, but also provides for one’s old age. LIFE INSURANCE NOT AN EXPENSE, BUT A SAVING. The money paid for fire and marine insurance may propeily be classified as an expense; that paid for life insurance cannot. In the former cases, the contract is for a limited period, within which the loss must occur, otherwise the insured receives nothing ; but, in the latter case, the contract is for life, or, if an endowment policy, until the attainment of a specified age. The sums paid as premiums are really deposits, and not payments. It is true that if the insured lives until he reaches old age, or until the endowment matures, the rate: of interest which he will receive on his deposits may not be large ; but cases are rare where he does not get back all he has paid, with some interest, while the profits realised of those who are early are immense. For example, a person, aged 30, insures up to the age of 35, and he receives, on attaining that age, LIOO for every LB2 Is 8d paid into the office, in annual premiums of L 3 5s 8d for 25 years, the full amount being paid at death should it happen sooner,

FAILURE OF PRIVATE OFFICES. j ■Of late years Serious loss and much ; misery have been occasioned by the I failure of insurance companies. Many homes have been left desolate. The provision which the heads of families had made, with foresight and prudence, as they fondly imagined, by insuring their lives for the benefit of their children, was swept away in a moment, too j late to repair the evil. How many | men died in despair in consequence of I the failure of these insurance companies I it would be impossible to say. That they may be counted by thousands is certain ; and I might excite your sympathy by many well-authenticated cases, where the failure of life insurance companies overwhelmed families with misery, accelerating the death of kind parents, and plunging helpless and tenderly-nurtured children into hopeless indigence. GOVERNMENT INSURANCE. So great was the evil consequent on the default of insurance companies, that the British Government felt bound to interfere, and Mr Gladstone carried the Government Life Insurance Act, a few years since, under which the State becomes the assurer. There is a State guarantee against failure and loss, The insured possesses the guarantee of the revenue of the United Kingdom, in addition to the accumulated capital of the entire population, for national obligations involve private as well as public property, the latter as direct, the former as collateral security. And when I state, on the authority of Mr Gladstone, who adduced the figures, that during the preceding 25 years of a total of 370 life insurance companies founded in England, no less than 328 had failed, or 14 annually, the necessity for the establishment of a State life assurance office will lie obvious. Still more so, when the immense sums involved in life assurance business is taken into account, L 15,000,000 being paid in England and Wales. Now, New Zealand did not pass scatheless through the recent defaults of private insurance offices. Losses were incurred here, and it is to the credit of the Government that they anticipated the wants of the country, and founded life assurance and annuities as a permanent department of the State, in connection with Post Office Savings Banks. I will, with the permission of the meeting, read a few remarks from the speech of Mr Lowe, Chancellor of the Exchequer, on the motion of the second reading of Mr Cave’s Bill in the House of Commons, to provide a system of auditing life insurance companies:— I am mm filing to sit down without saying that I desire most earnestly that something may he done whereby we may take away what is a reproach to our laws—that there are no means by which an Englishman can assure his life in snch a way as to he perfectly certain that on his death the benefit which he designs for those whom he may leave behind may come to them. I here is at present no such thing as that in this country. We are. I suppose, all insured somewhere or other, hut it is a mere probability. '(’here are no means by which a man can avoid the most painful position in which it is possible to be placed —that of dying in doubt and anxiety whether his family will receive the provision he has made for them. . . . It has occurred to me an being worthy of consideration—and I have given a good deal of consideration to the subject—whether it might not be the duty of the Government to come forward themselves and offer to the public the absolute security which the Government have alone the power to give to insurers. ... If we, in consideration of a sum of money, grant annuities, of course the converse operation is open to us, and we may grant a sum of money on dea'h in consideration of an annuity being paid to ns during life.” GOVERNMENT SECURITY AND LOW RATES OF PREMIUMS Versus MUTUAL ASSURANCE AND BONUS ADDITIONS. With respect to bonus additions, I maintain it is a delusion to think for a moment the insurer is a gainer by this system, as most people are aware the source from which the funds necessary to distribute a bonus are derived exists in the excess of premiums charged upon the policies beyond what is required to meet the sums contracted to be paid and the expenses of management. The extent to which an office can produce a bonus depends entirely upon the scale of premiums it exacts. It will be seen, .on examination of the tables of the Government Office and those of the Australian Mutual Provident Office (I mention the latter as 1 being more prominently before the public), that when there are no bonus additions allowed on either side, the latter society charge a person aged 40 LI 19s 4d, whereas the Government Office charges only LI 11s sd, which is something like 20 per cent, less than the Mutual Provident. On the other hand, if you want your premiums to cease after a certain number of years, say 20, you will find under table 11. in the Government Office that the premiums charged are not higher than that charge by the Australian Mutual for the whole of life. Mr Sturrock says, in the North British Bei'iew :— The system of assuring with offices giving large bonuses is very disadvantageous where assurances are strictly for the protection of families. Suppose that, at the age of .30, a yearly sum of 1/25 was to be devoted to that purpose. In the offices charging high premiums, that sum would secure L 9.30, in those charging the moderate premiums, L 1,205. The difference between the sums, L 269, is exactly the sum of an immediate bonus of that amount, to be paid by the latter office to the family in case of early death. As the object of every parent should be to secure at once as largo a sum as possible. and he who resorts to offices exacting high premiums, undoubtedly sacrifices the interests of bis family for benefits in a great degree only prospective and contingent. Mr Sang, another writer in the North British Ktview objects to the bonus system on grounds already discussed, and cites an instance in which a life office anticipated the profits to

the extent of LI 26,060, He admits that in all probability t'ho error was unintentional, but says that “ it rather aggravates than palliates the evil.” I have been told of a similar mistake, to the extent of LBO,OOO, occurring to an office on this side of the line not many years ago. In contrasting the merits of the Government Office—which to a certain extent is both proprietary and mutual —the former in guaranteeing the payment of the amount insured out of the Colonial revenue, the latter in utilising the credit and institutions of the Colony for the sole benefit of the inhabitants of the country, in giving them a secure and as cheap a system of life insurance as is consistent with a due regard to its being self-supporting with a purely mutual system of life assurance, it may be necessary for me to premise that the tables of both are based upon the expectation of life at. the different ages, plus a loading which is added to enable the office to pay managing expenses. Now, as a life office may, or may not, according to its experience be selfsupporting, a fact only discoverable after a number of years (usually from 30 to 37), and dependent on its management, risk from epidemic, and perhaps excessive mortality in its career, depreciations of its investments, and rates of interest, <fec., the all-important advantage of having a “ backbone and spinal marrow” in the shape of Government security becomes apparent. Professor De Morgan says as the claim for a life insurance may not become due for 20, 30, 40, even 50 years, it particularly behoves the insurer not to be satisfied with the present flourishing state of the society, but with the prospects of its permanency and future solvency. He shows still further grounds for caution ; “ a life office,” he says, ‘‘ may be in reality insolvent many years before the symptoms of bankruptcy come on.” Mr M'Glashan, M.H.R., in the course of a debate in the New Zealand Parliament, on July 25, last year, said : I’e should like to make a few remarks with regard to the New Zealand Government Assurance scheme, He thought it was a capital one, and he should be glad to see all the insurances effected upon lives in the Colony made under that scheme, because the Australian Mutual Provident Society insured all over the Colonies. He affirmed that the contingent risks wore much greater in the other Colonics than in the delightful climate of New Zealand, and hence, of a necessity, those who insured their lives in this Colony must pay to a great extent for the shorter lives of those resident in the neighboring Colonies, such as Queensland, New youth Wales, and South Australia. . . . In a Report of the Directors of the Australian Mutual Provident Society to a special meeting of members hold at Sydney in August last, he found the following combined and separate opinions of. three of the must eminent actuaries in England, who were engaged as referees as to the working of the Society in general, and as to the distribution of profits in particular “ Question as to the method of distributing the profits of the Society ? The referees are unanimously of opinion that the present method of distribution as laid down in the 29th byelaw docs not apportion tho profits equitably among the members; that the tendency of the existing method is undoubtedly to favor the members of the longest standing in the Society at the expense of those who have recently joined ; that the effect of this tendency would be sooner or iater to reduce the new members’ bonns to so low a rate that very few members would join ; that it possess no sufficient advantages on any ground to justify its retention ; and they decidedly advise the Society to abandon tbe present method of distribution?” The referees, in their separate opinions, give •reasons for stating “that the Society’s method of appointment leads, as might he ex pected, to great and increasing inequalities ; that the present method of distribution is in a very high degree inequitable, as between members entering at different periods; that the plan may he, end no doubt is, suitable for a company about to bo wound up. but unsuitable for a going concern ; that it is not equitable, because it is not intelligible ; that it is inconsistent with the principles of a Mutual Life Assurance Society ; that tbe method of distribution is inexpedient in the general interests of the Society,” Ac., ftc. CONDITIONS OF POLICY. And here the Government Office is much more liberal to insurers than private companies:— 1. The Government Life Insurance Department issues all desirable forms of policies. The payment of every policy is guaranteed by the Colony. 2. Premium rates are lower than those of private companies, which reduction is equivalent to a cash bonus in advance of from 15 to 20 per cent. 3. These rates are under the nonparticipating scale, and have been adjusted and endorsed by M. A. Black, Esq,, actuary, as being upon a safe and equitable basis. No disappointments or misrepresentations as to dividends or bonuses under this system is possible. 4. No policy or medical fee charged. 5. All policies are indisputable, and free from all conditions as to travelling and residence after five years' duration. G. Policies protected from the Laws of Bankruptcy to the amount of L 2,000. 7. Premiums may be paid on due dates at any Money Order Office in Great Britain, Ireland, or any of the Australian Colonies. 8. Cash surrender value of from 10 to CO per cent, of amount of premiums paid. 0. Probate, &c., dispensed with on all policies not exceeding L2OO, thus saving great expense to the representatives of the insured. 10. And, lastly, no life or endowment policy is forfeited by non-payment of premiums after the completion of the first year, as long as its surrender value will insure the amount of the policy. For example, a person aged 40, insured under a policy on which five annual payments bad been made, would

not forfeit it on account of non-pay-ment of premiums until the expiration of five years from date of default, and it could be renewed at any time within such term, on paying up arrears with interest; .or if it became a claim within that time, the policy would be paid, less arrears with interest ; or in other words, a year’s credit for every year the policy is in existence. No policy need therefore be sacrificed in consequence of the pressure of any temporary loss of employment or other monetary emharassment. In the event of the assured, after the expiration ot three years from the date of his policy, being unable from any cause to continue his payments, the Commissioner will, if required, grant him a “free or paid-up” policy—that is, a policy exempted from any future payments, for such a sum payable at death as the surrender value of such policy would assure. Thus, suppose the insured to be 30 years of age, assured for LSOO at death, after having paid, say, 10 years, or about L 75, for premiums, is unable longer to continue his payments, and wishes to exchange his present policy for a free or paid-up policy, the Commissioner would grant him one for such a sum as a single premium of L37(which would be about the surrender value of the old policy) would assure at death, namely, about LlO7. ENDOWMENTS FOR CHILDREN. Another special feature of the Government system of assurance is the opportunity it gives to parents to provide an endowment for their children, to perfect their education, and to give them a start in life on attaining a certain age. Thus, for an endowment of LIOO, the premiums to be returned without interest in the event of death, the following is an example ;—Age next birthday 1 year, payable at 14 years, annual payment L 6 3s 7d for 13 years; single payment, LSO 5s Gd. The tables provide for payment at 14, 18, and 21 years. I need not enforce the advantage of this plan. Parents will at once recognise it. The annual payment is small; the endowment is certain ; and in the event of death, the parent receives the amount contributed. This species of endowment should be largely availed of. LIOO expended on a boy’s education, between the ages of 1 i and 18, will be more advantageous to him in nine cases out of ten, in the Colonies, where the highest offices of State and social positions are accessible to every educated individual, irrespective of position and rank, than the accrued interest on LI,OOO invested. In closing, I trust I have made the superiority of the Government office over private insurance companies apparent. There is absolute security, premiums at the minimum rate, and no vexatious or slippery conditions in the policy. There is no risk from fraudulent officers, or cooked accounts, or depreciated securities. Ido not think I need urge upon any rational being at this time of day the necessity of life assurance. In young communities the proportion of the pioneers who leave riches to their families is comparatively small. Therefore, life assurance steps in as a substitute. The conditions are such that rich and poor alike can insure on easy terms. I trust that what I have said may induce all who hear me to make provision for their families by insuring in the Government Office in preference to any other.