This section is from the "Everybody's Guide to Money Matters" book, by William Cotton. With a description of the various investments chiefly dealt in on the stock exchange, and the mode of dealing therein. Some account of the pitfalls prepared for the unwary, and suggestions to the cautious investor.
It has been mentioned in a previous page that insurance has the advantage over the savings bank, no matter how long a person may live, and this is brought about by the operation of Bonuses, so called. These are the whole profits in the case of a Mutual Company, and the larger proportion of the profits in the case of a Joint-Stock Company, which are distributed amongst the policy holders. At the end of every five years, in some cases seven, a valuation is made of all the property of the Company and on the other hand is ascertained what the company is liable for, present and prospective. The difference between the two constitutes the surplus or profits, assuming of course that the assets preponderate. This seems at first sight to be a very simple process, but in reality the most intricate calculations are necessary to arrive at mathematical accuracy; but this needs no further notice here. The bonus being declared, it may be dealt with in various ways.
1. -- It may be added to the amount insured, and so payable at
2. -- It may be commuted for an immediate payment in cash. (In this case the amount will, of course, be less than in No. 1.)
3. -- It may be applied in a permanent reduction of the future annual premiums, or a proportionately larger reduction of these for the next five or seven years, and in other ways. Most offices granting every reasonable facility for applying profits in any way the insured may consider desirable.
"Endowment Insurance". -- This is a class of insurance by which an insurer may receive the amount of a policy himself during his life, at an age to be fixed at the time the insurance is effected. Should he die before reaching the age specified, the money is payable to his representatives.
It may also be so arranged that instead of receiving the money at a certain age, he may be paid a fixed sum annually for the rest of his life thereafter.
For example -- a person at the age of thirty may insure £1,000 to be paid to him on attaining the age of sixty. The annual premiums for insurances of this kind vary with different offices; but they can be effected at the age named, at about £28 10s. for the £1,000. If the person died before attaining the specified age, the money would be paid to his representatives; if he survived, he could either receive the £1,000, or be granted an annuity for the remainder of his life of £92 a year. In the case of females the annuity would be £83 only, as they are supposed to live longer than males.
"Non-forfeitable Policies". -- This plan provides for the continuance of insurance upon the life of a policy holder should the insured from any cause be unable to keep up his premiums. The principle of this scheme ensures that, in consideration of the premiums already paid, a policy for a certain amount -- less of course than that named in the original policy, which would be cancelled -- would be granted freed from all future payments in respect of premiums, and the insurance money of the new policy would be payable at death. For example -- a person insures his life for £1,000 at the age of thirty, the annual premium on which would be £25 a year. At the age of forty he finds himself unable any longer to pay the annual premium, but to avoid the loss of the £250 which he has paid during the ten years, he will surrender the old policy for £1,000 and will be granted a new one, say for half the amount, payable at death, and he will not be called upon to pay any further premiums.
"Settlement Policies". -- This class of policy is issued under the Married Women's Property Act (1882), whereby a trust can be created for the benefit of a wife or children of an insured person, the trustee being the Insurance Company. The advantage of this is that such a policy does not constitute a part of the husband's estate or become subject to his debts, either whilst living or at his death, so that in the latter event the money is paid to the widow or children direct for their own use. A policy of this kind, if necessity should arise, could also be exchanged for a non-forfeitable policy in the manner before pointed out.
"Endowments for Children". -- A parent, by paying a premium of about £5 5s. annually, can secure to a child aged six a sum of £100, on its attaining the age of twenty-one. Should the child die before reaching that age, the money paid in premiums is not lost, for it is all returned to the parent without deduction.
By this means a marriage portion or outfit for a girl, or a start in business for a boy can be provided to any amount that may be desired.
"Insurance on Joint Lives" is another mode of insurance, very useful in particular cases. For example: a mother aged fifty has an income, for her life and no longer, of £300 a year, and she has a daughter aged twenty, who has no means of her own, present or prospective, being entirely dependent on her mother. The joint lives are insured for, say, £2,000, which would cost in premium £100 a year; the insurance money to be paid at the death of the first of the two. If the daughter died first the mother would get back, by the insurance money, possibly more than she had paid in premiums. If the mother died first, say at the age of seventy, by that time the daughter would have attained the age of forty, and the £2,000 would be paid to her. With the money she might, if she so pleased, buy an annuity for life of £110 a year.
"Insurance on the Longest of Two Lives", payable on the death of the survivor, is useful in cases where land or house property is held on lease, so that there may be no pecuniary loss when the lease expires. The rate of premium is in this case naturally less than where the insurance is to be paid on the earlier of the two deaths.