LECTURE ON LIFE INSURANCE.

New Zealand Tablet, Volume I, Issue 33, 13 December 1873, Page 1 (Supplement)

LECTURE ON LIFE INSURANCE.

By Mr T. P. MoDonogh, Sub-Commissioner Government Life r . a Insurance Department) THB foll6 wing 1 address was delivered at the Masonic Hall, Dunedin, on Tuesday, November 11 ; A. Mercer, Esq., J.P., in the chair:— The .subject of nay lecture this evening is Life Assurance and Annuities. The question of Life Assurance has been prominently brought before the fcew 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 thiuk you will agree with me, on reflection, that the subject has not received that amount of general Attention winch its' importance demands. REASONS FOE INSURING. Because time is money. Brain and muscle are just as much value as houses and merchandise ; they are alike perishable— the latter by fire.and the perils of the ocean, the formor 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 ? Because families are the foundation and corner-stone of civilised ■ociety. The head of a family is bound by every Christian virtue and social duty to protect it and provide for it. la this way alone can the integrity of the family system be preserved. The heads of families are the pilots who steer one generation into another, a«d the premature loss of the pilot is a Joas. Way then should not the protection offered by life insurance be accepted ? - T> OBU . OATIbN - 10 PBOVIDE FOB WIFE AND CHILDREN. Because in the economy of existence every true man, however far removed from sentimentalism, is impressed with a sacred obligation to P.*?!$ c ,l or . hlB Wlfe and children. This may be the result of educate. 11 S ad C"^ 0111 ' 0 * a development of a higher phas« of the selfish P" nc !l?* e » °.r. r »* ma y be love ; at all events, it is a fact j and this fact is t™. 1 ?}. 081 g en ? ral stimulus to toil— whether mental or physical— with whicnwe meet. ' ' r J ' We may pub il down, therefore, as a universal truth that man's primary object in life is to provide for his family. Now, think of a dozen acquaraUnces^.who have -died, between, the, ages of 25 and 50, and count on yourfingersthe number who /have attained this object. **'*£* be , Bmal1 5 ® acl > of tQ em could have reached it had they under- * fcfiv* d ' a ? ce P te 1 d We insurance: If a man' is earning £300 a'year, rSiLxfv *" mechanic, a farmer, a bookkeeper, a trader, a physician, a-wafcevor a- lawyer; he can better afford to live on £280, and invest ,£ em " nd f? ln a «fe Policy,, than his widow and orphans can live on nothing.' This is self-evident, and yet it is constantly ignored. v , * l we admit , thafc a -"nan's cliief object is the welfare of his family, Me assurance is the best security against failure in that object. Labor v the true philosopher's stone, and the workshop the real El Dorado. For one who acquires a fortuue in a day, or a. year, or five years, there are fifty thousand who struggle for a living Suring 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 tail-to fulfil their. destiuy— to conduct their children sifely to the thresh hold of independent life, or their lives to the harbor of rest ? lhe bills of mortality will answer this question. If ninety-nine white ball* and one blaok 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 OP RICHES. ... B 2?B 2?* USQ tho duration of riches is as uncertain as the duratiou of lite. There are few business men who do not fail at one time or X? ? e *\» * v r . andona 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 w sad truth that even among the earnest and faithful class of merchants, few -secure for themselves a comfortable lbing in the declining years of life. Nor is the application of this remark limited to business men alone j lawyers, physicians, 1 clergymen, mechanics, ana even iarmers, 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 provision 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 «»?>plf» the annual premium on £500 pure insurance is, at the age of 30, £10 2s 6d. The policy is paid at death only. But for an additional annual premium of £6 5s the Government stipulate to V %\- assurance when the assured reaches the age of 55 ; or for an additional annual premium of £3 11s on attaining the age of 60, and, of couree, previously, in the event of his death. Such a policy is not s&sr^. o M %^ during the bußy part of life> but alao IXFB INSURANCE NOT AN EXPENSE, BUT A SAVINS-. Xhe money paid for fi,- e and marine insurance may properly 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, untU the attainment of a specified age. Tho 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. *or example, a person, aged 30, insures up to the ago of 55; and he receives, on attaining that age, LIOO for every LB2 Is Id paid into the office, in annual premiums of L 35» 8d for 25 years, the 'full amount beiug paid at death should it happen sooner. • .

■BAILVS.K OF PBIVATE OTPICES. Of late years serious loss and much misery have been occasioned' by the failure of insurance companies. Many homes have been left desolate. The provision which the heads of families had made, with foresight and prudence, us they fondly imagined, by insuring their lives for the benefit of their children, was swept away in a moment, too late to repair the evil. How many men ' died in despair in consequence of the failure of these insurance companies it would be ini-^ possible 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 ot life insurance companies overwhelmed families with misery, accelerating the death of kind parents, and plunging helpless and tenderly-nurtured children into hopeless indigence. • GOVERNMENT EfSFBANOE. So great was the evil consequent on the default of insurance companies, that the British Govern mont 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 379 life insurance companies founded in England, no less than 328 had failed, or 14 annually, the necessity for the establishment of a Stale assurance office will be obvious. Still more so, when the im-L mense sums involved in life assurance business is taken into account, £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 Offioe 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 tho second reading of Mr Cave's Bill in the House of Commons, to provide a system of auditing life insurance : — - lam unwilling to sit down without saying that I desire most earnestly that' something may be 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 such a way as to be perfectly certain that on his death the benefit which he designs for those whom he may leave behind may come to them. There is at present no such thing as that in this country. We are, I suppose, all insured somewhere 'or other, but it is a mere probability. There are no means by which * 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 as being worthy of consideration — and I have given a good' deal Uf consideration to the subject — whether it might not be the duty of the Government to coma 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 convene operation is open to us, and wo may grant a sum of money on death in consideration of an annuity being paid to us during life." GOVERNMENT SECURITY AND LOW BATES OF PREMIUMS versus MTTTtrAIi ASSTJRANOE AND BONTTS 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 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 £1 19s 4d, whereas the Government Office charges only £1 11s sd, which is something like 20 per cent, less than the Mutual Provident. On the other hand if you want your premiums Jko cease after a certain number of years, say 20, you will find under table 11. in the Governmont Office that the premiums charged are" not higher than that charged by the Australian Mutual for the whole of life. Mr Sturrock says in'the ' North' British Review : ' " 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 ago of 30, a yearly sum'of £25 was to be devoted to that purpose. In the offices charging high premiums, that sum would secure £936, in those charging the moderate premiums, £1,205. The difference between the sums, £269, is exactly the sum of an immediate bonus of tliat amount, to be paid by tie latter office to the family in case of early death. As the object 'of every parent should be to secure at once a3 large' a sum as possible, and he who resorts to offices exacting high premiums undoubtedly sacrifices the interests of his family for benefits in a great degree' only prospective and contingent." ' • ' Mr Sang, another writer in the ' North British Review,' 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 £126,060. ■He admits that in all probability the 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 £80,000, occurring to an office on this side of the line not many years ago. In a lleport of the Directors of the Australian Mutual Provident Society to a special meeting ot members' hold at Sydney in August lasfyhe fouud the following combiued and separate opinions of three of the most eminent actuaries in England, who were engaged as referees as to the working of the Society in 1 general, acd as to the distributioa

of profits in particular:—" Question as to the method of distiibuting the profits of the Society ? The referees are unanimously of opinion that the present method of distribution as laid down in the 29th byelaw does not apportion the profits equitably among the members ; that the tendency of the existing method 13 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 later to reduce the new members' bonus to so low a rate that very few members would join 5 that it possesses no sufficient advantage on any ground to justify its retention; and they decidedly advise the Society to abandon the present method of distribution." The referees, in" their separate opinions, give reasons for stating " that the Society's method of appointment leads, as might be expected, to great and inoreasing 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 be, and no doubt is, suitable for a company about to be wound up, but unsuitable for a going concern; that it is not equitable, because it is not intelligible j that it is inconsistent with the principles of a Mutual Life Assurance Society ; that the method of distribution is inexpedient in the general interests of the Society," &c , &c. "" 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 self-supporting, a fact only discoverable after a number of years (usually from 30 to 37), and dependeat on its management, risk from' epidemic, and perhaps excessive mortality in its career, depreciations of its investments, and rates of interest, &c, 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 Bociety, 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: — "He should like to make a few remarks with regard so the New Zealand Government Assurance scheme. He thought it was a capital one, and he Bhould 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 were much greater iv the other colonies than in the delightful climate of New Zealand, and hence, of a necessity, those who insured their lives in this Colony most pay to a great extent tor the- shorter lives of those resident in the neighboring colonies, such as Queensland, New South Wales, and South Australia. . ." CONDITIONS OP EOIiICT. 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. J 2. Premium rates are lower than those of private companies, which reduction is equivalent to a cash bonus in advauce of from 15 to 20 per cent. 3. These rates are under the non*partieipating scale, and have been adjusted and endorsed by M. A. Black, Esq., actuary, as being upon a saie and equitable basis. No disappointments or misrepresentations as to dividends or bonuses under this system is possible. 4. No policy or medical fee charged. 6. All policies are indisputable, and free from all conditions as to travelling and residence after five years' duration. of £2b5 >liCieS protßCted from fche Laws of -Bankruptcy to the amount /m* 7*7 * .JP. JPr ® miums way °c paid on due dates at any Money Order Offices m Great Britain, Ireland, or any of the Australian Colonies. 8. Gash surrender value of from 40 to 60 per cent, of amount of premiums paid. .eon™ 5f obate > .&c". &c " dispensed with on all policies not exceeding msured BMat cx PensoP enso to the representatives of the 10. And lastly, ro life or endowmant policy is forfeited by non-pay-ment 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 nve annual payments had been made, would not forfeit it on account °\ Boa-Payment of premiums until the expiration of five years from date ot default, and it could be renewed at any time, within such term, on E a ?* UP a f earswi^ Merest; or if it became a claim within that time, the policy would be paid, less arrears with interest ; or in other m.rds.ayears credit for every year the policy is in existence. No policy need thereiore be sacrificed in consequence of pressure of any temporary loss of employment or other monetary embarrassment. f mra rtSt eT n ?f the assured, after the expiration of three years from the date of his policy, being from any cause unable to continue his payments, the Commissioner will, if required, grant him a « free or payed-up policy '—that is, a policy exempted from any future payment, 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 £500 at death, after having paid, say, 10 years, or about *7&, tor premiums j 8 unable longer to watioue his paymonts, and wished

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 £37 (vrhich would be about the surrender value of thl old policy) would assure at death, namely, about £107. t*««y; wuiuu ENDOWMENTS FOE 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 £100, the premums to be returned without interest in the event of death, the following is an example:— Age next birthday 1 year, payable at 14. UTi a The Vw yment 9* Wft * 13 y ea «5 single payment, £59 5s 6d. The tables provide for payment at 14, 18, and 21 years I v!oL? Ot •; af ° r Sf, the a<iTanta S e of this plan. Parents will at once recognise it The annual payment is small 5 the eadowment is nS,^T- 8 eve - nto £ death ' fche P arent reoeive9 the «"»««* contributed This species of endowment should be largely availed of. ±,100 expended on a bqy's education between the ages of 14 and 18 will be more advantageous to him in nine eases 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 £1000 invested. In closing, I trust I have made the superiority of the Governmeat office over private insurance companies apparent. There ia absolute security, premiums at a 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 V"?? m 'S e u P° n an / rational being at this time of day the necessity ot lite assurance. In young communities the proportion of the pioneers who leave riches to their families is comparatively small, inerefore 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 ia preference to any other.