Some Life Insurance Problems
| Date | 01 March 1955 |
| DOI | http://doi.org/10.1111/j.1468-2230.1955.tb00289.x |
| Author | B. Plummer |
| Published date | 01 March 1955 |
SOME
LIFE
INSURANCE PROBLEMS
IT
is
surprising how little precise knowledge of life insurance the
ordinary man
or
woman possesses. This remark applies, rather sur-
prisingly, to very many solicitors. By precise knowledge,
I
mean
knowledge of the best method to be adopted to secure
a
given
result and the best office in which
to
insure.
If
the maximum amount of protection for a man’s dependants
is
desired,
it
is obvious that the type of policy which has the lowest
premium is the one to choose. This is, of course, the whole life
policy. The question then arises whether
a
with-profit policy
(i.e.,
one carrying bonuses)
or
a
non-profit policy
is
the better.
Before considering this question,
it
may be helpful to say
a
few
words about bonuses. They may be
at
simple
or
compound rates
and may be declared after valuations made annually
or
at longer
intervals, generally
of
three
or
five years. Where
a
simple bonus
is
added to the policy,
it
is
calculated
on
the original sum assured,
but where
a
compound bonus is added,
it
is calculated
on
the sum
assured plus the bonuses already added.
A
table of the annual reversionary bonuses
of
the various life
offices is to be found
on
pages
56
to
61
in
the current
Insurance
Agent’s Vade-Mecum.’
Tables showing the total amount
of
El
,000
policy increased by bonuses which are either
(a)
simple,
(b)
annual
compound,
(c)
triennial compound,
or
(d)
quinquennial compound,
will be found in Stone and Cox’s
Insurance Tables
(ordinary
branch).2 From these tables can be constructed one comparing the
value of a
El00
policy after say
30
years having a bonus of say
€1
los., paid in accordance with one of the four methods mentioned
above as follows-
Simple bonus €145
0s.
Annual compound El56
3s.
Triennial compound
El55 3s.
Quinquennial compound €154
3s.
There is thus very little difference between the results
of
calculating
compound bonuses, but an office paying simple bonuses, in order to
provide the same result as one paying compound bonuses, must
either have a lower premium
or
pay larger bonuses
or
both.
A
simple calculation comparing
a
typical non-profit policy with
a
with-profit one will provide an answer. Assume that the assured
is
aged
35
at his next birthday. His expectation of life will be
96.35
years
on
the basis
of
the 1924-29 Mortality Tables, which are
those almost invariably used by British Life Offices.*
Assuming the annual premium for a pol’cy for whole life for
Elm
with profits will be
E2
16s.
2d. per cent. (This is the rate of
one
of
the life offices.)
This
equals €2.808.
2
Pnblished annually, price
68.
6d.
1
Published annually,
price
7s.
6d.
3
See tabla
on
page
73
of
the
Insurance Agent’s Vade-Mecum.
148
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