The system, once introduced, was gradually extended first to
insurances effected by premiums payable during longer fixed
periods, and ultimately, by some offices, to insurances bearing
annual premiums during the whole of life. The methods of
fixing the amount of paid-up policy in the last-mentioned class
of cases vary in different offices, but the principle underlying them
all is that of applying the reserve value to the purchase of a new
insurance of reduced amount.
An office, in entering on a contract of life insurance, does so in the faith that all circumstances material to be known in order to a proper estimate of the risk have been disclosed. These circumstances are beyond its own Conditions of insurance. knowledge, and as the office for the most part (except as regards the result of the medical examination, which may reveal features of the case unknown to the proposer himself) is dependent on the information furnished by the party seeking to effect the insurance, it is proper that the latter be made responsible for the correctness of such information. Accordingly it is made a stipulation, preliminary to the issue of every policy, that all the required information bearing upon the risk shall have been truly and fairly stated, and that in case of any misrepresentation, or any concealment of material facts, the insurance shall be forfeited. In practice, however, this forfeiture is rarely insisted on unless there has been an evident intention to deceive. Other systems and conditions of life insurance policies may be shortly noticed.
The usual division of policies is into “non-participating” and “participating.” Non-participating policies are contracts for the payment on death of a certain fixed sum in consideration of a given premium, and these amounts are not affected by the profit made by the company. Participating policies entitle the holders to a share in the profits of the company. These profits are applied in various ways, as described above. A policy may be a whole life one, that is, the policyholder may pay a periodical premium throughout life, or it may be a limited payment one (the holder paying a premium for a limited number of years), or an endowment policy, under which the insurer receives the amount he has insured for at a given age, say fifty-five or sixty; or if death occur previously, the sum is paid to his representatives. There are also endowment policies for children, under which parents or others receive a specified sum on a child attaining a given age, the premiums being returnable if the child dies before the specified age.
As to Payment of Premiums.—A certain period of grace is allowed, most commonly thirty days, after each premium falls due. If payment is not made within that time, the presumption is that the policyholder intends to drop the contract, and the risk of the office comes to an end. It may, however, be revived on certain conditions, usually the production of evidence of health and payment of a fine in addition to the premium. An impression used to prevail among the public that the offices were interested in encouraging the forfeiture of policies. If any such impression was ever shared by the offices themselves it must have long since passed away, every reasonable effort being now made on their part, not only to secure insurances but to retain them, and to afford all the facilities that can be extended to policyholders with that object.
As to Foreign Travel and Residence, and as to Hazardous Occupations.—When Babbage wrote his Comparative View of Assurance Institutions in 1826, voyaging abroad was scarcely permitted under a British life policy. The Elbe and the Garonne, Texel and Havre, Texel and Brest, the Elbe and Brest were the limits prescribed by most of the English offices. Even at a much later period the extra premiums charged for leave to travel or reside abroad were very heavy. But improved means of conveyance—in some places better sanitary appliances, and habits of living more suited to the climatic conditions—and, more than all perhaps, the knowledge that has been gained by experience as to the extent of the extra risks involved and the relative salubrity of foreign climates—have enabled the offices to modify their terms very considerably. The limits of free residence and travel have been greatly widened, and where extra premiums are still required these are, as a rule, much lower than formerly. The assured are now commonly permitted to reside anywhere within such limits as north of 35° N. lat. (except in Asia) or south of 30° S. lat., and to travel to and from any places within those limits, without extra premium.
Military men (when on active service) and seafaring men are usually charged extra rates, as are also persons following specially dangerous or unhealthy occupations at home.
As to Suicide.—The policies of most companies used to contain a proviso that the insurance shall be void in case the person whose life is insured dies by his own hand, but it is now seldom inserted. Some offices, acting on a sound principle, limit its operation to a fixed period, the extent of which varies in different offices from six months to seven years from the date of issue of the policy.
The practice of rendering policies indisputable and free from restriction as to foreign travel or residence, after a certain period, has tended greatly to simplify the contract between the office and the insured. A declaration of indisputability covers any inaccuracies in the original documents on which a policy was granted, unless these inaccuracies amount to fraud, which the law will not condone under any circumstances.
A remarkable difference in the development of life insurance between Great Britain and the United States is, that among the British companies only one-third of the insurances in force is in purely mutual institutions, while in America the proportion exceeds four-fifths. In both countries there are also “mixed” companies, in which policyholders receive a fixed percentage of the realized surplus, often from three-fourths to nine-tenths of the whole, but the control and management are in the hands of shareholders. These form the great majority of the proprietary offices in the United Kingdom, and the profits of the business have been large. The amount of capital paid in by shareholders of forty-one joint-stock companies was £5,931,000, but the capital authorized and subscribed was much more, and the subscriptions have often been paid, wholly or in part, by credits from surplus. The shares of these companies, at market prices, represent a value of at least £50,000,000, but the dividends upon these shares are drawn largely from other business, many of the largest and most prosperous corporations conducting also fire insurance, and some of them marine or casualty insurance.
No branch of social statistics has been more diligently studied than life insurance, and several governments publish classified accounts of corporations insuring lives within their jurisdiction. But the reports are not uniform in method and in periods covered, and aggregates derived from them must be used with reserve. By the Life Assurance Companies Act 1870, and amendments made in later years, each company issuing policies in the United Kingdom must deposit with the Board of Trade every year its revenue account and balance-sheet for the preceding year, and must at fixed intervals cause an investigation of its financial condition to be made by an actuary, and furnish the public through the Board of Trade with the detailed results, in forms prescribed by the act. Thus these returns are the highest authority for the conditions and operations of the offices, which often supplement or anticipate them by voluntary publications. In the United States the laws exact still more minute and much prompter reports to the insurance departments of the states; and every annual statement is required to show the results of an actuarial investigation. All these facts are collected, classified and compared by statisticians for several standard annuals in both countries, especially the Post Magazine Almanack, Bourne’s Directory and Manual and the Insurance Blue Book in London, and The Insurance Year-Book of the Spectator Company in New York.
The reports of the insurance department of New York cover more companies than those of any other state. The institutions not included in them are about thirty-five in number, mostly small and local. The New York reports represent very nearly 95% of the entire business of the United States. While the amount of life assurance done by British and other foreign offices in the United States is insignificant, fourteen companies of the United States have agencies in Canada (ten for new business), and four transact business in Europe and in other parts of the world. The home business of the American companies is in the aggregate about 8712% of the whole.
In the principal countries of continental Europe life assurance is offered by the chief international institutions of Great Britain and the United States, and their policies are in force probably to the aggregate amount of £140,000,000. The domestic companies have been stimulated to increased activity by the aggressive canvassing of the foreign agencies, and the business in recent years has grown rapidly, until now the total sum insured upon lives on the continent of Europe is little less than a milliard of pounds sterling. Much information about life assurance in the different countries of Europe will be found in Ehrenzweig’s Assekuranzjahrbuch (Vienna). (C. T. L.; T. A. I.)
V. British Post Office Insurance
In 1864 Mr Gladstone, then chancellor of the exchequer, advocated the extension of life insurance amongst persons of small means, and, encouraged by the remarkable success of the
