Page:Encyclopædia Britannica, Ninth Edition, v. 13.djvu/191

LIFE.] of past payments can arise when one party or tho other determines to drop the contract. It is quite recognized that the premiums are simply an equivalent for the risk undertaken during the period to which they apply, with a certain margin for expenses and for profit to the insurer, and that therefore a favourable issue of the particular contract supplies no argument for a return of any part of the sums paid. In life assurance, however, we have shown that the premiums contain a third element, namely, the portion that is set aside and accumulated to meet the risk of the assurance when the premium payable is no longer sufficient of itself for that purpose. When a policyholder withdraws from his contract with a life assurance office, the provision made for the future in respect of his particular assurance is no longer required, and out of it a surrender value may be. allowed him for giving up his right to the policy. If there were no reasons to the contrary, the office might hand over the whole of this provision, which, as we have seen, is in fact the reserve value of the policy. No more could be given without encroaching upon the provision necessary for the remaining policies. But the policyholder in withdrawing is exercising a power which circumstances give to him only and not to the other party in the contract. The office is bound by the policy so long as the premiums are duly paid and the other conditions of assurance are not infringed. It has no opportunity of reviewing its position and withdrawing from the bargain should that appear likely to be a losing one. The policy- holder, on the other hand, is free to continue or to drop the assurance as he pleases, and it may fairly be presumed that he will take whichever course will best serve his own interest. If he is in failing health he is the more likely to make an effort to keep the assurance on foot ; if he has also fallen into adverse circumstances, his friends may aid him to maintain his policy for the benefit of those dependent on him, or he may dispose of it to some one who, knowing the circumstances, may be willing to give a high price for it, speculating on the chance of its becoming an early claim. All these things do happen, and the tendency obviously is that policies on deteriorated and unhealthy lives are kept in force, while those on lives having good prospects of longevity are more readily given up. Again, the retiring policyholder, by withdrawing his annual contribution, not only diminishes the fund from which expenses are met, but lessens the area over which these are spread, and so increases the burden for those who remain. Considerations like these point to the conclusion that, in fairness to the remaining constituents of the office, the surrender value to be allowed for a policy which is to be given up should be less than the reserve value. The common practice is to allow a proportion only of the reserve value. Some offices have adopted the plan of allowing a specified proportion of the amount of premiums paid. This plan is not defended on any ground of principle, but is followed for its simplicity and as a concession to a popular demand for fixed surrender values. n- Another mode of securing to retiring policyholders the .eiture benefit of the reserve values of their assurances is that em known as the non-forfeiture system. This system was first introduced in America, whence it found its way to the United Kingdom, where it was gradually adopted by a large proportion of the assurance companies. In its origi nal form it was known as the " ten years non-forfeiture plan," The policies were effected by premiums payable during ten years only, the rates being of course correspond ingly high. If during those ten years the policyholder wished to discontinue his payments, he was entitled to a free "paid-up policy" for as many tenth parts of the original sum assured as he had paid premiums, The system, once introduced was gradually extended first 179 to assurances effected by premiums payable during longer fixed periods, and ultimately, by some offices, to assurances 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 assurance of reduced amount. Conditions of Assurance. An office, in entering on a Dis- contract of life assurance, does so in the faith that all closure circumstances material to be known in order to a proper of facts- estimate of the risk have been disclosed. These circum stances are beyond its own 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 un known to the proposer himself) is dependent on the infor mation furnished by the party seeking to effect the assur ance, 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 assurance shall be forfeited. In practice, however, this forfeiture is rarely insisted on unless there has been an evident intention to deceive. The other usual conditions of life assurance policies may be shortly noticed. 1. As to Payment of Premiums. A certain period of grace is Days of allowed, most commonly thirty days, after each premium falls due. grace. 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 con ditions, 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, as it will be found that every reasonable effort is now made on their part, not only to secure assurances but to retain them, and to afford all the facilities that can be extended to policyholders with that object. 2. As to Foreign Travel and Residence, and as to Hazardous Occu- Foreign pations. When MrBabbage wrote his Comparative View of Assur- limits, once Institutions in 1826, voyaging abroad was scarcely permitted &c. under a life policy. The Elbe and the Garonne, Texel and Havre, Texcl and Brest, the Elbe and Brest, were tho limits prescribed by most of the English offices. Even at a much later period tho 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 tho extent of the extra risks in volved and the relative salubrity of foreign climates have enabled the offices to modify their tenns very considerably. The limits of free residence and travel have been greatly widened, and where extra premiums are still required these arc, as a rule, much lower than formerly. The assured arc now commonly permitted to reside any where 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 of course charged extra rates, as are also persons following specially dangerous or unhealthy occupations at home. 3. As to Suicide. flic policies of most companies contain a Suicide, proviso that the assurance shall be void in case the person whose life is assured dies by his own hand. This proviso is analogous to that which renders void a fire policy if the insured becomes guilty of arson, or a policy of marine insurance if the vessel is wrecked intentionally by the owner. The event contemplated in the policy being brought about by the voluntary act of the assured, and not in the natural course of events, is a contingency not included in the scheme of insurance. In the case of life policies the general rule of law appears to be (see The Law of Life Assurance, by C. J. Bunyon) that the contract will be avoided unless the suicide takes place when the assured is insane and not accountable for his acts. Sometimes the proviso "whether insane or not" is inserted m policies. In the case of policies lona fide assigned, or otherwise held by a third party for an onerous cause, it is usual to exempt the assurance from forfeiture to the extent of the interest of such third party. The practice of assurance offices, however, in regar