Hundreds of thousands of dollars are lost annually in Canada through careless investment. Fraudulent and worthless securities are being constantly poured on to the market to trap the unwary. A general observance of this simple maxim will assist in the reduction and elimination of this economic waste—
"BEFORE YOU IN V EST—IN V ESTIG ATE”
ONE OF the most important developments of interest to life insurance policyholders in 1933 is the growing popularity of the non-participating policy.
Most people appreciate, of course, that there are two major types of life insurance contract. The “non-par” policy, as it is called, is the kind for which we pay a specific ! annual premium year in and year out. Participating insurance is that for which the policyholder pays an initial or gross premium, which is usually from ten to thirty per cent more than the corresponding nonpar premium and which permits the policyholder to share in the surplus earnings of the company. This participation takes the form of an annual or quinquennial dividend distribution. which, of course, considerably reduces the amount of the gross or initial premium as years go by.
Most life insurance written in Canada is on a participating basis, the argument in favor of this type of policy being that in the long run the net cost of insurance is likely to be less than if the same policy had been purchased on a non-participating basis. Then, too. many policyholders like the idea of receiving a dividend cheque every year or five years as the case may be. Some of i them use this to reduce the amount of their I annual premium; others take it out in cash and still others use it to build up their life insurance equity.
Of the forty or more life insurance companies doing business in Canada, all but about half a dozen normally write the greater part of their business on a participating basis. A few companies, including some which rank among the foremost on this continent, write non-participating business exclusively.
But in the last year or two, many things have happened to disturb this state of affairs. To begin with, many people have found their incomes shrinking, and where formerly they had perhaps §200 or §500 a year to invest in insurance or some other savings fund, this figure has now been cut by one-half or even two-thirds. Naturally they have looked for some type of insurance protection which could be bought for the lowest possible initial outlay.
Then, too, the ability of life insurance salesmen to sell participating contracts has been disturbed because the majority of Canadian and American companies have found it necessary to curtail, temporarily at least, the amount of theii dividend distribution to policyholders. Earnings and surplus have been reduced, and it has been of paramount importance for companies to i maintain a sound cash or liquid position to meet the demand of policyholders for policy loans or cash surrender values. Wisely, companies have moderated their dividend distributions to bring them more in line with their current earning and balance sheet positions.
These two factors particularly have tended to divert much attention from participating to non-par jxilicies.
A study of the records of leading Canadian companies bears ample testimony to this
change. For instance, at the end of 1931, analysis of the business of a dozen leading Canadian companies revealed that only nine or ten per cent of the total business in force was on a non-par basis. Figures of issued or paid-for business of these same companies during 1932 show that between twenty-five and thirty per cent of all ordinary business placed in that year was on a non-par plan. Some of the leading companies—-formerly strong devotees of the participating type of insuranceplaced as much as forty per cent of their new business during 1932 on a nonparticipating basis.
Higher Non-Par Rates
QO FAR SO GOOD, but as non-par sales ^ shot upward and business and financial indices kept slipping downward, it became apparent that many companies doing business in Canada were charging non-par rates which began to seem inadequate in the light of future probability.
For instance, interest rates, which form one of the chief sources of earning power of life insurance companies, were steadily slipping downward. Current financial events seemed to indicate that for the future a period of declining interest rates was highly probable, which might last five, ten or perhaps fifteen years. This was a vital consideration since non-par rates are predicated on what is likely to happen n the next ten. fifteen or twenty years, and it was obvious that any business currently sold on a non-par basis would have to prove profitable over this period.
This and other considerations have brought a number of the executives and expert advisers of life companies in Canada to the belief that existing non-par rates are too low. and that in order to put this branch of the business on a profitable or even a selfsustaining basis, an increase in rates will be necessary.
Already, for instance, three eading United States companies, two of which do business in Canada entirely on the non-par plan, have announced an increase in their rates. The increase applies only to policies at age forty-five or higher, but is an indication of the probable trend during 1933. This was followed by almost similar action on the part of one of the leading Canadian companies in respect of its American business only.
As far as Canadian companies are concerned. the matter has been under consideration for some time among the actuarial experts. Early in April, a special committee
of actuaries appointed to discuss this matter brought in a report which went definitely on record as favoring substantially higher rates for this type of policy. The chairman of this committee, L. K. File, associate actuary of one of the leading Canadian companies, expressed his opinion that many, if not all Canadian companies are writing non-par business at rates that “must be resulting in a loss” and that “it would seem the part of wisdom to take steps forthwith to increase rates to such an extent to make them at least self-supporting.”
Rates recommended by Mr. File were from five to ten per cent higher than the premiums currently being charged by leading non-par companies. The spread is even greater when premiums currently being charged by companies which write the majority of their business on a participating basis, are considered.
Policyholders may wonder why there can be such a spread in the rates on non-par business as between different companies. Perhaps one of the most important reasons is that leading Canadian companies which write the greater part of their business on a participating basis allow only a very small commission on their non-par business. Accordingly, they feel they can afford to write this business at a rate somewhat lower than would be justified if their entire business were non-par and agents were forced to depend entirely on this type of contract for their livelihood. Sometimes, too, non-par rates are deliberately put on a “cut-rate” basis to be used only for competitive purposes.
Already some companies, sensing the trend to non-par business, have hastened to take advantage of this and have increased the commission payable on the non-par type of policy to their agents. This in itself has tended to stimulate sale of non-par business and is responsible to some extent for the increase in premium volume.
Certain it is that during 1933 thousands of life insurance buyers will have placed before them—perhaps for the first time— the merits of the non-par contract. Many believe that this popularity will be shortlived, and that once prosperity returns and higher dividends are being paid to participating policyholders, the old-time popularity of the participating policies will return. Be that as it may, some of the most important companies on this continent have built up a huge volume of business on a purely non-par basis, and the very fact that three times as many people bought non-par policies in 1932 as in previous years cannot help but have an important bearing on the popularity of this form of insurance protection.
Non-])ar insurance provides the maximum of protection for the lowest initial premium outlay. If you need insurance protection badly and have only a little money with which to buy it, non-par policies offer a ready answer to your problem. Added to that is the fact that at present prices non-par contracts are probably as cheap as they will be for many years to come.
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