SURRENDER VALUE OF LIFE POLICIES.

Thames Star, Volume VII, Issue 1895, 29 January 1875, Page 3

SURRENDER VALUE OF LIFE POLICIES.

Perhaps there is no subject at the present day claiming more attention in relation to life insurance than that of surrender values. The public hare seized upon it as a cause of complaint against the companies, and, without inquiring into the question from an unprejudiced standpoint, jump at the conclusion that inasmuch as the company has not lost anything "under a policy while it remains in force, when it is voluntarily cancelled by the insured, the company would' be willing to make a liberal return of premiums in consideration of being released from a heavy liability in the future. This view seems plausible enough, but it is not a correct one. There are very many things to be taken into cosideration in calculating surrender values. The surrender value, properly speaking, is the reserve of net value of the policy ; that is, the " unearned " premium remaining in the hands of the company after the payment of expenses. Thisexcessof unexpended premium is held in the present tc meet the claims in the future ; and the theory of paying a surrender value is, that the liability being cancelled by the surrender ©f the policy, the company had no further claim on this reserve, and should, it is believed, be paid in full, the "loaning" on the pure net premium being considered sufficient to pay its snare of the expenses during the continuance of the policy. This, however, is not so. There are other things to be considered in dealing with this question. If a healthy life withdraw from a company, the withdrawal will, of itself, be sufficient to disturb the calculations of thß company, unless another life ©f equal vitality is found to take the place of the retiring one. The cost of providing the new risk has, therefore, to come out of the surrender value of the old policy risk, and this of itself, is a matter which should be closely calculated. Again, as a ! rule, healthy men are the most prone to allow their policies to lapse, and the companies are obliged, on that account to render the surrender value question as unattractive as possible, as if the inducements'* to surrender were sufficiently powerful, many of the healthy members would be inclined to withdraw, leaving behind them j only the doubtful risks, and thus throw on the company an additional load of j mortality, for which no provisions is made in the premium tables. The dividends of the remaining policy holders would not be j increased, nor the solvency of the company by such an arrangment, and, therefore, it is that the claims of the majority who remain are of greater importance than those of the minority who withdraw. If, as a rule, the policy-holders went out in equal proportion, good and bad, with those who remained, it would be far easier, perhaps, to adopt some general rule according to plan of policy and age of policyholder. But, as this does not occur, the company has to throw all the safeguards possible around its funds, so that the men who " stick to their colours" shall be fully secured in

the family provision which their ■ policies represent. Injustice to the companies, therefore, it is not fair, perhaps, to condemn them for the general desire not to make known fully the precise amount which they can allow on the surrender of, policies at any given period. A desire is i now being generally expressed that all life policies have a cash surrender value endorsed thereon; and some of the great j lights of the insurance world have declared in favor of this innovation ; but, urgent as may be the necessity, we cannot help thinking that the value of life insurance, as a family provision, is likely to be materially lessened by the establishment of this feature. One of the many arguments in favor of life insurance, as compared with savings banks, is that the money being locked up in the former, it is out of the way of being withdrawn on any slight pretext that may offer. The endorsement of a certain defiaite cash surrender value on a policy converts the insurance company into a savings bank to the extent of that value, and the policy being therefore negotiable to that extent, is parted with under some slight temporary pressure, and the family provision is destroyed. Taking the best and fairest view of the question, would it not be better to abolish cash surrender values and substitute paid-up insurance in every case of contemplated surrender. If life policies are invested with a negotiable character, they will be eagerly brought up by speculators, and the trade once began, there will be but few policies left in the hands of the original owners. Life insurance at the present day is exposed to too many evils without subjecting it to more, and before adopting "■ endorsed, surrender values" as a feature of business the companies should take care that they " don't put their foot in it."—lnsurance "World.