INVESTING $600 FOR CHILD, TO BUILD UP ESTATE AT 24
A. M. ALLANMarch151925
INVESTING $600 FOR CHILD, TO BUILD UP ESTATE AT 24
A. M. ALLAN
QUESTION—A man aged sixty wishes to invest $600, either in lump sum insurance, or in bonds. This investment, is intended to provide for his young son, who is at present aged four, and who is to realize on the investment at twenty-four years of age. What would, in your opinion, be the better course for this man to follow, in view of the fact that he is now sixty and that he wishes to provide for his son when that individual reaches the age of twentyfour? What is your opinion of the Mutual Life of Canada?—H.J.L., P.E.I.
Answer—We are of the opinion that it would be the better course for the man aged sixty to invest his $600 in bonds, because he evidently does not want protection, but rather an investment which will accumulate the most in twenty years. He should create a trust, with direction to the trustees to purchase a twenty year bond, the interest to be accumulated and re-invested from time to time as sufficient money is available. Such a bond would probably pay about five per cent. In twenty years, if so invested, the $600, compounded semi - annually, would amount to approximately $1,591.80. This, of course, is on the assumption that the interest is reinvested at the rate of five per cent.
Insurance, except in the case of the early death of the insured, would not accumulate as much. Perhaps the insurance best fitted to the case would be twenty year Endowment. If this were taken on the non-participating plan, a paid up policy could be purchased by single premium for approximately $655. If taken on the participating plan the money would buy less paid up insurance, of course. As a matter of fact a paid up policy at age sixty for $1,000, on the Straight Life, participating plan, would cost approximately $760, single premium.
If such a policy paid four per cent., in twenty years the $1,000 would accumulate $1,608. But $760 is required to make this sum through insurance. While on the other hand $600, used to create a trust fund, will accumulate $1,590. In case of the man’s death a year or so after the insurance is purchased, and there is a clause in the policy which states that the amount of the insurance is to be left with the company, in trust for the child when it reaches the age of twenty-four, the insurance company would pay interest on the total, from the date of the death of the insured, to the end of the Endowment period. In other words if a twenty year Endowment policy were purchased in a lump sum for $655, and the insured died in five years, the company would pay interest at approximately four per cent, on the $1,000 for fifteen years. This would bring the total estate of the boy at age twenty-four to approximately $1,600.
However, this sum would only be attained in the event of the death of the insured at age sixty-five. Taking everything into consideration, and bearing in mind that the first purpose of this man is to create 3 fund for the young boy, we have no hesitaion in recommending the trust fund. Any of the large trust companies will be glad to give you all the information on this matter.
The Mutual Life Insurance Company of Canada operates under a Dominion license, and as it maintains the necessary deposits for the protection of the policy holders, is a safe company in which to insure. The company has just completed its fifty-first year and is one of the strong companies in Canada. According to the Government report for 1923, the assets of the Mutual Life Assurance Company of Canada totalled $59,727,388. The total liabilities were $58,698,438. During 1923 the company issued policies amounting to $39,040,578, as against $34,557,248 during the previous year. The total insurance now in force is $269,982,565, which compares with $246,486,654, at the end of 1922. The total income for the year was $14,448,769, which is an increase over the previous year of $1,042,838. The income was derived from the following sources: Premiums—less re-assurances—$9,763,635; interest and rentals $3,307,316; amount on deposit with the company $464,154 and miscellaneous income of $15,663. The total amount paid out to policy holders and their beneficiaries, during 1923, was $5,369,743, an increase of $80,301 over the previous year. During 1923 the company had a favorable experience with death losses. The total amount, after deducting re-assurances, was $1,375,875, which is less by $4,371 than the previous year’s figures for the same item. The percentage of death losses to those provided for in the premium was 39.6 per cent., while that for the previous year was 42.71 per cent.
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