Investment is usually undertaken because we want to provide an income for ourselves and our dependents when we have left off earning one by our work, and to have a sum ready in the hands of our executors to pay the cost of burying us and proving our wills and filling the rapacious claw which the Chancellor of the Exchequer holds out whenever an estate passes by inheritance.
Investment for all these purposes can be done by means of a policy, or policies, of life insurance, with the additional and very important advantage that if we happen to die the sum assured is immediately available for those we leave behind.
It therefore follows that anyone who has wife or child or others dependent on him should make his insurance premium the first charge on his income after the barest necessities of life have been paid for. This duty is so obvious that even the Revenue authorities encourage us to perform it, by remitting income tax, within limits, on sums invested in this form of thrift.
Insurance policies are infinite in variety, and it is no part of the purpose of this book to examine their varieties in detail. Their broad divisions are into:—
(1) With-profit and non-profit, and
(2) Endowment and whole life.
A with-profit policy carries the right to share in the surplus shown by the company after providing for claims. The share received by the assured is usually called a bonus, and may be taken in the form of a reduction of future premiums, or of an addition to the sum payable when the policy becomes a claim, by death or maturity. One can have a with-profit or a non-profit endowment policy and likewise with whole life.
The advantages of these different kinds of policy have strong advocates. It seems to me that a man who lives by his work and has to face the possibility of a "Saturday afternoon" to his life in which he will be inclined, and probably obliged, to live without working, is well advised to choose the form of an endowment policy or policies, payable at the age of sixty or sixty-five.
One argument against the endowment form of policy is the likelihood that the assured, on collecting his policy money, will proceed to dissipate it. If this be really probable it is certainly better to deliver ourselves from temptation by having a whole life policy payable to our executors. But I should have thought that most people who have the sense to insure will be more likely, by the time that they come to the age when the policy matures, to have the sense to take care of the money if it is necessary for them to do so.
An advantage about collecting one's insurance policy oneself is that it saves one from the feeling, which must, I imagine, be unpleasant as one becomes old and a useless consumer, that one's dependents will be better off when one is buried. In the case of a whole life policy-holder this is true. When one is old and helpless, there will be a certain satisfaction in feeling that one is still an earning asset, and this satisfaction one can secure by the acquisition of an annuity which will rather more than cover one's cost of living. This at least wil! give one a material justification for going on living after one has ceased to be an active worker.
This may be a selfish, perhaps a morbid, point of view, and of course no one has any right to sink capital in an annuity unless he has already made full provision for anyone that he leaves behind, and preferably, in my view, handed that provision over to them, so that no one may be waiting for monetary advantage from his demise.
As to the non-profit or with-profit division, very shrewd advisers have pointed out to me the disadvantage of paying the higher premium that a with-profit policy requires, when there is a risk that one's company may have no surplus to divide in bonuses. But it seems to me that in normal times this risk is negligible. The companies must work on a margin, and that margin becomes surplus. My feeling is that good insurance companies can invest better than I can—for one, among many other reasons, because they handle much larger funds—and in my youth I took out two with-profit endowment policies, and I see no reason to regret having done so.
But if insurance has all these advantages why should one bother about any other form of investment? Why not put all that one can save into life policies? For those who are going to die young, this would certainly, from the point of view of their heirs, be the far, far better course. But for those who are going to live a normal span, moderation in insurance is counselled by the fact that those who live pay for those who make brilliant insurance investments by dying.
The chairman of the Clerical Medical and General Life Assurance Society cautioned the shareholders at the meeting held last October against inferring, from its fortunate mortality experience, that every claim represents a profit to the society. "This," he said, "is indeed, far from being the case, and the protection afforded by life assurance against the risk of early death is a very real one. The actuary informs me that of the 241 deaths which took place during the year, two—one of which, I may mention, involved a very large amount—occurred in the first year of assurance. Two deaths occurred in the second year of assurance, and five in the third; while over 40 per cent. of the total number of deaths resulted in a financial loss to the society—a tribute to the value of life assurance to the community." This financial loss, of course, was met out of profits made at the expense of the long-lived policy holders.
As we do not know, when we insure, whether we shall be a financial loss or profit to our society, but naturally expect to be a source of profit by surviving, the natural course is evidently to limit our purchase of insurance to the point which makes full and, if possible, generous provision for those whom we shall leave dependent if we die young; and having made this duty the first charge on our saving capacity, to devote the balance of it to investing for ourselves.