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The Pamphlet Collection of Sir Robert Stout: Volume 37

Life Insurance—does it Pay as an Investment?

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Life Insurance—does it Pay as an Investment?

Perhaps no question of greater importance to the

Importance of the Question.

bulk of the population in this and other colonies, or one which more nearly affects their worldly prosperity, could be asked than that which forms the heading of this pamphlet. And it would be difficult to find a question of equal moment with regard to which there is such a wide diversity of opinion, even among those who are fully qualified, both by education and ability, to judge for themselves on such a matter. Year after year, in the columns of the daily press and in pamphlet form, the public are entreated to avail themselves of the opportunities held out to them by the various Life Insurance Companies; but notwithstanding the numerous arguments, good, bad, and indifferent, pressed into the service of the latter, there can be no doubt that a very large proportion of the general public are anything but favourably inclined towards the system of life insurance. To give publicity to the reasons which have induced many to form this adverse opinion, and to show, to the best of his ability, how far they are borne out by facts, is the object of the writer of these pages. He is not interested in the slightest degree in the prosperity of any life insurance company in existence; nor has he any intention of taking steps to become so. His object is simply to draw the attention of the public to a question of the very greatest importance to many of them, and to which they have not as yet received a page 2 satisfactory answer—" Life Insurance—Does it pay as an investment?"

What Life Insurance claims to be.

First of all let us see what is claimed for the system by those most interested in its further pro motion and prosperity. Professedly it is neither more nor less than a wide-spread scheme of benevo lence—an universal panacea for "all the ills (almost) that flesh is heir to,"—a system which enables those who will accept of its benevolence to bear calmly the every day trials and misfortunes of life, confident in the assurance that those near and dear to then: are securely provided for in the event of their decease. And its advocates do not stop even at this. If we are to believe them a participation in this system of life insurance is an incentive to thrift a sacred duty, a pledge of affection, and a kind of written testimony to the piety of all those whose inclinations or hopes may induce them to become partakers of this scheme of benevolence.

Eagerness of Insurance Companies to increase their business.

If—the word is used advisedly—the system of life insurance be all that is claimed for it by its advocates; if it really is based on true benevolent principles, one would think that it would only have to be made known to be accepted willingly by everyone. Such, however, is apparently not by any means the case; and there is something extremely incongruous, not to say ludicrous (allowing the scheme to be one of benevolence), in the eagerness displayed by Life Insurance Companies to increase their business. Almost every one has heard the anecdote (false or true it is worth re-telling) of the American traveller who was so pestered by insurance agents while in London that he sought a refuge at the top of the Monument, and who, on emerging on the railed platform, was accosted by a benevolent looking gentleman with, a solicitation to take note of the advantages offered by Table III. The satirist who first invented the anecdote (if it was invented was scarcely going beyond the mark in his cari- page 3 cature of the persistency displayed by a certain class of insurance agents. Even in this colony it is scarcely, possible to invest half a dozen times in postage stamps at one of the country post offices without undergoing a somewhat similar experience. If any mortal is

Activity of Insurance Agents.

entitled to lay claim to ubiquity, that mortal is surely to be discovered in the guise of an insurance agent Their activity in the pursuit of business (horrid word to use in reference to a scheme of benevolencel), is only equalled by the unblushing effrontery which they display in urging the claims of the company which they represent. No statement of the necessities of the individual whose "life" they are anxious to secure is sufficient to restrain their importunity; no ugly experience in the annals of life insurance which cannot be smoothed away by these specious touters. Ask them to explain the intricate

Unwillingness of Agents to explain the details of life insurance.

system by which the millions of capital are built up; evince but the slightest desire to become acquainted with the number of policy holders who have contributed to build up this vast pile of gold, but who have received none of it in return; and the insurance agent becomes, metaphorically speaking, a cuttlefish, and escapes the awkward enquiries by enveloping himself in a cloud of hackneyed utterances regarding the extreme benevolence of the company which he has the honour (?) to represent.
The fact that the pecuniary circumstances of the individual, whose life they are endeavouring to secure, are not such as to warrant his entering into such a contract as that indicated, has no effect in checking these touters' ardour. In the palace or the workshop they are to be found equally at home, holding out the fear of death in one hand and their scheme of benevolence in the other, and only bent on securing the life which will entitle them to draw

Qualifications of an insurer from the Companies' point of view.

their share of the profit made upon it. No person apparently is entitled to refuse the advances of the "Friend of the Family" so long as he is able to pay page 4 the first charge made upon him for the latter's benevolence, and is in such a state of health as to render it pretty certain that this benevolence will not be called upon in the immediate future.

One-sided manner in which Life Insurance Companies press their claims on the public.

Here, it may be remarked, is one of the proofs of the disinterested benevolence of the life insurance companies. While they and their agents make use of the King of Terrors as a means of increasing their business by trading on the fears of the public;! while they lay immense stress on the fact that once a person is insured, his relatives are certain of getting the amount of his insurance money in the event of his demise, even if only one premium has been paid, they do not consider it necessary to impress upon the individual the fact that they intend to take every possible precaution to prevent his becoming a claim upon them. The medical examination is spoken of as a mere matter of form; the enquiries instituted as to the health of the individual's family serve as a basis for a few jocular or complimentary remarks; and the unfortunate recipient of this scheme of benevolence pays his money, enters into a compact to pay a certain sum of money every year, and retires in blissful ignorance of the fact that the chances are ten to one against his ever getting anything in return for his money.
If (the writer uses the word advisedly once more) life insurance is all that it is represented to be, why should those interested in it be afraid to show the reverse side of the medal? Why should not the individual whose "life" it is sought to obtain, be made acquainted with the losses which may await him as well as with the profits. In taking any serious step in life, no matter in what direction that step may lead, people have a right to learn both the advantages and disadvantages which may accrue to them from taking that step. But in the case of life insurance this is exactly what those interested in it have most to fear, their assertions to the con- page 5 trary notwithstanding; and therefore it is that we find insurance companies and their touters overstepping the limits of truth on the one hand while they are not above acting a he on the other. Here

Instances of above.

is an instance of the one-sided manner in which these companies appeal to the public, taken from a pamphlet entitled "Be Wise in Time," published in 1878 for the Government Life Insurance Department of New Zealand:—"Let us suppose for illustration, that a farm could be purchased on similar conditions as to the amount of annual payment, that A buys a farm and B an insurance, each equaling in value say £1000; the payments of each person amounting yearly to £24. After the first payment both die. The heirs of A own property valued at £1000, on which there is still a debt of £976. The heirs of B receive £1000 in cash. It is a splendid condition of this latter form of investment that death cancels all obligation to continue payments. If we suppose the payments to have continued over a longer period of time, ten years, for instance, then there would still have been the sum of £750 due on the farm, and the payment already made would not have been sufficient to secure it from forced sale and loss of the entire sum invested." This reads very comfortably from the insurance agents' point of view, but look at the reverse side of the medal. The chances of an insurer dying one year after the issue of his policy, except by accident or the visitation of God, are so small as to be almost infinitesimal; and the insurance companies know this or they would not issue the policy. On the other hand illness, depression in business, or many other causes might arise which would render it impossible for B to continue his premiums. Supposing this to occur after a lapse of 10 years from the issue of the policy, B would have paid £240 as premiums. He might allow the policy to run on until the overdue premiums had page 6 swallowed up the bonus additions, and then, if still unable to continue the payment, he would lose the whole of his money, or he might surrender his policy to the Company and get in return—about £96! This is but one instance out of many of the one-sided manner in which the working of life insurance is placed before the public. And yet we are told that the system is a spontaneous outcome of benevolence—a more than fatherly solicitude for the future welfare of those dependant upon us. If this be questioned, let the sceptical refer to a pamphlet entitled "Will it Pay?" published in 1878 for the Government Life Insurance Department of New Zealand, in which the reader is beseeched on the score of piety, duty, affection, common-sense, and a host of other heartrending grounds, to accept the benevolent offices of that department, which on the opening page figures under the attractive guise of "A Friend of the Family."

The "Friend the Family" [unclear: cposed].

The Government ideal of this well-known character is a very attractive one, though somewhat suggestive of the heavy father who used to figure on the stage in the early days of the British Drama. A closer acquaintance with him, however, discloses some very serious blemishes in his character, and proves that he is not by any means so disinterested in his offers of assistance as he would have us believe. To drop metaphor, however, which by the way is scarcely a suitable cloak in which to drape a business transaction such as life insurance, (and that it is a business transaction, and a very unprofitable one to the public, will be shown later on), it must be apparent to all that there must be some motive at the bottom of the benevolent solicitude for our welfare exhibited by the various Life Insurance Companies; and it requires no very great amount of perspicuity

[unclear: need the active of surance companies].

to discover what that motive is.

It is simply the desire to make money. "The Friend of the Family," in common with the rest of page 7 the human species, is possessed with the greed for filthy lucre, and is not above the meanness of endeavouring to obtain it by playing on the weaknesses and fears of the members of the family whose welfare he is supposed to have in view. Here again for the purpose of illustration, the writer must refer the public to the pamphlet previously mentioned, by which it will be seen that he does not make this statement without having some grounds for his assertion. There, under the headings, "A social necessity," "A moral and social duty," "Take care of the children," &c., the public are regaled with the usual mixture of maudlin sentiment and stale platitudes which seems to form the stock-in-trade of the majority of life insurance agents and their employers.

If there is one class more than another which is

Persons most sought after by Insurance Companies.

sedulously interviewed on the subject of life insurance it is that which is composed of persons in the humbler walks of life—those whose incomes are no more than sufficient to cover their expenses from one year's end to another. These apparently are looked upon with especial favor by the "Friend of the Family," who positively yearns to make them the recipients of his benevolence; and these it is to whom the writer specially wishes to address himself. One of the most peculiar features in the system of life insurance is the anxiety displayed by the various companies and their agents to extend their business amongst this class of persons. Whether the assumption,

Reason for this anxiety.

too often correct, that the majority of this class will sooner or later, through stress of circumstances, allow their policies to lapse has anything to do with this extraordinary ebullition of philanthrophy on their behalf, the writer is unable to say; but he has

Insurers' loss the Companies' gain.

no doubt whatever that their inability to continue their premiums adds considerably to the profits of the companies. If a return could be obtained of the social status of all those persons who have allowed their policies to lapse in the Government Life page 8 Insurance Department and the Australian Mutual Provident Society, and who have thereby helped to swell the enormous capital of those institutions, the writer is convinced that by far the largest proportion of the return would be found to consist of persons in this class. And yet we still find the "Friend of the Family" urging his claims upon their notice in preference to their wealthier neighbours!

Life Insurance not' within reach of the working classes.

Howevet desirable it may be that the members of the labouring classes should make some provision for those dependant upon them in case of their decease, it is still patent to all who will give the time and attention necessary to the study of life insurance that the system is one which is not, properly speaking, within their reach. Those whose incomes are barely sufficient to meet the every day expenses of life, are certainly not in a position to enter into such a risky speculation as life insurance. With the majority of them it simply means losing the substance to grasp at the shadow. With the working man ready money is almost a sine qua non in the carrying on of his household expenses, &c. Every shilling taken, for whatever purpose, from his weekly earnings makes itself felt. Properly speaking he has no surplus income, and if at any time he is able to put away a few shillings or pounds, it is only laid by as a reserve which may be called upon in case of the advent of the proverbial "rainy day."

Advantages of Friendly Societies over Life Insurance Companies.

Perhaps few persons, outside the social circle which includes the great bulk of the labouring classes, are aware of the heavy tax which a policy of insurance imposes upon a member of this class. The writer is acquainted with frequent instances of working men having resorted to the suicidal policy of borrowing small sums of money, often at usurious interest, in order to enable them to continue the payment of their premiums. As a safeguard against adverse circumstances, individual ill-health, or family sickness, the advantages offered by life page 9 insurance companies bear no comparison to those afforded by the various friendly societies which have been established throughout the world. Should the bread-winner of a family be stricken down by illness, and incapacitated from earning the pittance which enables him to support a wife and family, the life insurance companies offer him no relief. Like a modern prototype of the Merchant of Venice they still demand their pound of flesh; in sickness or in health, in prosperous or adverse circumstances, the unfortunate partaker in their scheme of benevolence (?) must still pay the demand made upon him, or forfeit the greater portion of the sum which he has already sacrificed to their insatiable greed. How often has one of these poor sons of toil, stretched upon a bed of sickness, seen all the hard earnings of many a weary year slipping from his grasp, while he felt himself powerless to prevent the inevitable catastrophe? Ask the insurance companies and their touters. They and they alone can tell the? applicant who it was that built up that enormous pile of capital; how much anguish and distress that vast sum of gold represents.
Now look at the advantages offered by some of the

Instances of working of Friendly Societies.

Friendly Societies—friendly in the best sense of the word. No legion of touters to sing their praises; no untruthful pamphlets and one-sided statements to mislead those whose benefit they claim to seek: no parade of the vast sums stolen (no other word is sufficiently strong), from the pockets of those whom they profess to befriend. "Deeds, not words," should assuredly be their motto, and well would they deserve it. The writer will simply cite one or two of the rules of a branch of the Ancient Order of Foresters in England, in whose work he was interested some years ago. Every member by payment of 6d. per week was entitled to the following benefits:—In case of sickness, doctor and medecine free; 10s. per week for the first six months of his page 10 illness; 7s. 6d. for the ensuing six months; and 5s. for the remainder of the time during which he was incapacitated from work. In addition to this if a member died his relations received £10 as burial expenses; if his wife died he received £8 for a like purpose; and if he were willing to pay a sum of 3s. for his wife and 2s. each for his children annually to the society, they also received medical attendance and medecine free of all charge. How much more to the benefit of the struggling artizan is a society like this than a life insurance company? Let the labouring classes decide.

[unclear: novel friendly society].

A few more words (before the writer brings forward the statistics which are necessary to obtain an answer to the question which forms the title of this pamphlet), to direct attention to a novel kind of friendly society which obtains now in many of the centres of labour in Great Britian. One case with which the writer was acquainted will serve to illustrate the system. The workmen (300 in number,) at Messrs.—&—'s manufactory at Sheffield, entered into an agreement to pay a sum of 6d. per week into a general fund. In return for this they received the following advantages:—In case of sickness a member received 10s. weekly for a period of six months, 7s. 6d. weekly for a further period of three months, and 5s. weekly for the remainder of the time during which he was incapacitated from work. In the event of the subscriber's death his wife, or nearest relation, received £8 as burial expenses; if the subscriber's wife died he received for a similar purpose; doctor's attendance and medecine were in each case given free of charge. At the end of the year, after deducting actual expenses (the secretary and treasurer's remuneration was 6d. annually for each member; auditor's fee 5s.) and reserving a small amount as a reserve fund, the balance was divided equally among all the subscribers; and not unfrequently amounted to over 75% of the money page 11 paid in. Here is another contrast (a still greater one) to the system of the life insurance companies. Not only was each member guaranteed this assistance in case of necessity, but at the termination of the year he received in hard cash the greater bulk of the money which he had paid to secure it. Then look at the difference in the expenses of management! On the one hand we have a society composed

Expenses of management in Life Insurance Companies.

mainly of uneducated men, inspired only with the desire to benefit one another, carrying out a good work at a cost of a trifle over 2½% on the net income and waking it pay; on the other we have two vast companies (the Australian Mutual Provident Society and the Government Life Insurance Department of New Zealand) carrying on a gigantic system of speculation at a respective cost of 15% and 20% of their total incomes. In the first instance the members of the society were not above looking after their own interests and doing their own work: in the other the members are content to allow a host of superfluous "Jacks in Office" to fatten on the outcome of their credulity, and are perfectly willing to take for granted any statements made by those whose interest it is to delude them. What thinking man, a member of the working classes, would hesitate to choose between a society such as the writer has instancetad Sheffield and a Life Insurance Company—the immediate and permanent assistance offered by the one, and the illusive advantages put forward under the false cloak of benevolence by the other? Of course it will be said that in the former case the individual was not guaranteed in case of death anything like the sum at his command in the latter; but the chances of an insurer, especially one whose lot is cast in the humbler walks of life, becoming a claim upon an insurance company are so few, and the risks of losing what he has paid so many, that they cannot be held to counterbalance the advantages offered by a Friendly Society.
page 12

[unclear: lances 10 to against insurer getting anything our his money.]

The writer said in a previous paragraph that the chances of an insurer becoming a claim upon either of the Companies referred to previously were ten to one against him. That this is no exaggeration, anyone who will peruse the last reports of those societies will see for himself. Take the Report of the Government Insurance Commissioner for the past year, prepared for presentation to the General Assembly, and turn to the table headed, "Policies Discontinued." From it it will be seen that out of a total of 839 policies discontinued during the year there were only 78 terminated by death, while no fewer

[unclear: distance of this from the cast Government Insurance Commisonersreport.]

than 636 were allowed to lapse. Of the remainder, I terminated by maturity, 12 by expiry, 3 by cancellation, and the remaining 100 were surrendered. Thus out of 830 persons, who at some period in the past took out policies in the department referred to, 636 lost every penny they had paid on their policies, while another 100 received only 40% of the amount paid in—the remaining 60% being retained by "The Friend of the Family" as a specimen of his benevolence.

[unclear: instances from the C.M.P. Society's last report.]

Here is another instance taken from the last report of the Australian Mutual Provident Society. The number of new polices issued last year by that society was 6551, but the net increase to its business was represented by only 3822 policies, owing to the fact that the terminating policies numbered no fewer than 2729! Out of this number there were claims upon the society under 261 policies only. But what about the other 2468 terminating policies? The report, curiously enough, is silent upon that head; and perhaps wisely so.

What has been written so far should at least serve to point out the folly of taking out a policy before one is certain of being able to continue the payment of the premiums. Had the 636 persons in the Government Life Insurance Department of New Zealand, and the 2468 persons in the Australian Mutual page 13 Provident Society, whose policies lapsed during the past financial year, invested their savings in a savings bank they would not now be bemoaning the loss of their money; and had those who surrendered their policies done likewise they would not only have received the whole of their money back, but would have received a certain, amount of interest as well, instead of being mulcted of 60% of the capital. The advocates of life insurance will probably here step in with the remark that had these persons done as is suggested they would have reaped no benefit beyond their savings in the event of their death having taken place during the period over which their transactions with the bank extended. This is of course nothing but the truth, but as has been previously pointed out, the insurance companies take such precautions to guard against the acceptance of an unsafe life that the remote chance (accidents excepted) of a person's relatives benefitting through his insurance, are entirely overweighed by the personal and immediate advantages to be obtained by investing in a savings bank.

The writer has, he considers, pretty conclusively

Losses which may befall the insurer.

substantiated his statement as to the chances which an insurer has of obtaining anything from the society in which he takes out a policy. It is only neccesary now to illustrate the losses which may fall to his share should he persist in becoming a partaker of this scheme of benevolence (?) It is always a difficult matter to obtain authentic information bearing upon this point, because it is naturally a sore subject with those whose experience is able to supply it; and few men care to proclaim their folly even for the benefit of their fellowmen. Fortunately, however, the writer has in his possession a copy of a letter, published not long since on this very subject, which contains a number of instances the truth of which is vouched for by the writer. This at least is certain, they have never been disputed. Here are a few of them:—
"A B insured his life 20 years since, aged 37,

Instances of above.

page 14 for £500. He has paid £15 3s. each year during that time; he still lives, but money being scarce he would be glad to be relieved from further payments. Now, had he paid this amount yearly into one of the societies established in Wellington for the purpose of accumulating small savings, and which have been so successful, he could now have laid his hands on fully £700, which would produce him £56 per annum. He asks the Australian Mutual Provident Society what they will return him for the money he has given them? They answer, £260 or £270; this shows a positive loss of £430. Has not this been a losing game? Another case, C D, aged 49, insured his life for £500, eight years since. He has paid £22 8s. yearly to this society. He is alive, but it would suit his circumstances to cease paying the amount. Had he paid the amount into one of the societies referred to, they would now give him about £235, which would produce £20 a-year for him, but the Australian Mutual Provident Society offer to return him only £116. Here is a loss of £120, not a trifle in these times. Another case, E F insured his life 15 years since for £600, then 65 years old. He has paid £54 6s. each year during that time to the Australian Mutual Provident Society. Had this sum been paid into one of these investment societies, he would now be entitled to draw out £1500, which would bring in £120 per annum, but instead of that, willing or unwilling, able or unable, he must go on paying the £54 6s. if he lives another 10 years. E F is now very old, and the payment is kept up with great difficulty, and he feels that he has paid more than enough for the amount he is insured for. He asks the Society what they will give him now

It is easily seen how the Australian Mutual Provident Society made their £3,500,000.

for what he has paid in? They answer £455 Here is a positive loss of £1045. This is a splendid investment for E F (over the left), and must elicit the question, can such be? I am aware that, at the rate of interest the society's funds are invested, the sum paid yearly would not produce to the page 15 society much over £1200; but I will assume that as the amount earned by the society; then allow 15 per cent, for expenses which would reduce the amount by £180; this will leave £1020 in the hands of the Society as the net results of E F's yearly payments. So by offering £445 for the surrender of this policy the Society makes a net profit out of this transaction of £565. Just one case more: G H insured his life in the Government office for £900. After paying £40 a year for five years, or a total amount of £200, his circumstances prevented him from keeping up the payments, his life remained insured for about two years while the surrender value was running out, but after that the policy lapsed, and the £200 was a total loss."

Surely, as the writer of the letter from which the above extracts are taken says, if such things as these can happen to members of a life insurance company they should pause before they get entangled in its web—a veritable spider's web to multitudes. All i of these persons whose losses are instanced above might have got prizes in the lottery, but they did not; and the annual reports of the several life insurance companies prove incontestably that the great bulk of the insured do not. What more need be said?

Much might be written respecting the working

Advice to members of the Working Classes.

details of life insurance—the vexed question of exorbitant premiums, bonuses, expenses of management, &c.—but the writer has no intention of entering upon this debateable ground at present. His object in taking up his pen was not to analyse the system of life insurance in detail, but to direct attention to its results; to prove that at least one statement put forward by those interested in it (viz, that it is profitable as an investment), is absolutely without foundation in fact. Let the members of that class in whose interest these lines are written weigh this matter well before taking heed to the statements put forward by life insurance companies and their agents. Let them ascertain the motive of this scheme of benevolence (?), this Mutual Provi- page 16 dent System which enriches the few at the expense of the many. Let them discover, if they can, why this benevolence, of which we hear so much and see so little, does not prompt these companies to enquire whether the insurer is not losing his substance in the endeavour to grasp the shadow. Do

The dark side of Life Insurance.

they ever make these enquiries i No, taking advantage of his inexperience, playing upon his fears, and dazzling him with the prospect of advantages which in many instances they must know to be utterly beyond his reach, they strip him of the little that might have made home comfortable; and when he has exhausted his resources to meet this drain upon him, beggared his present to provide for others' future, and can pay no more, they accept the surrender of his policy and return him 40% of the money he has paid to them, or magnanimously allow him a paid-uppolicy (payable at his death) for a trifle over the sum which they have had the use of for years past and may possibly have for years to come.
Such is one of the pictures, a by no means uncommon one, visible to those who can read between the lines of a Life Insurance Company's report. Many will no doubt cavil at it, stigmatize it as untruthful or at least overdrawn. The writer knows' that it is neither; that there are darker pages still in the annals of life insurance; that this same system of universal benevolence has been the source of untold hardships and misery to thousands, and will be so still to thousands more. It is of little moment to point to those who have benefitted by the system, seeing that it has been at the expense of their fellow

The test of [unclear: true benevolence.]

creatures. If the greatest good to the greatest number is to be the test of these companies—and what scheme of true benevolence does not aim at attaining this—then this system of life insurance should be abolished, or so remodelled as to allow of its being practicable to carry out the benevolence which is claimed for it, but which at present is only conspicuous—from its absence.

James Hughes, Steam Printer, &c., Lambton-quay, Wellington.