§ Rules for Valuing Policies.
§ 1. The value of the policy is to be the difference between the present value of the reversion in the sum assured according to the contingency upon which it is payable, including any bonus added thereto, and the present value of the future net premiums.
§ 2. The net premium is to be such premium as according to the assumed rate of interest and rate of mortality and the age of the person whose life is assured at his birthday next following the date of the policy is sufficient to provide for the risk incurred by the company or society in issuing the policy, exclusive of any addition thereto for office expenses and other charges:
§ Provided that—
- (a) In the case of a policy other than a policy for the whole term of life issued before the person whose life is assured attained the age of ten years, the date of the policy may be assumed to be one year after the actual date, and if it is so assumed, the term of the policy may be assumed to be one year less than the actual term:
- (b) In the case of a policy for the whole term of life issued before the person whose life is assured attained the age of ten years, no account shall be taken of any period for which the policy was in force before the anniversary of the date of the issue of the policy next preceding the date on which the age of eleven years was attained:
- (c) In the case of a substituted policy, the net premium shall be calculated with reference to such sum as, according to the practice of the society or company for the time being, would have been assured by the premiums payable if the person upon whose life the substituted policy is issued had not been assured with the society or company before the issue of that policy.
§
LORD SHANDON moved to omit from the Fourth Schedule the Rules for valuing policies and to insert "The value of the policy is to be the total of all premiums paid less a deduction from such total at the rate of £5 per centum." The noble Lord said: My Lord, this Amendment is one to obtain greater clearness with regard to the effect of the actuarial calculations which, I honestly confess, I only dimly understand or perhaps misunderstand. The effect of the Bill will be that the holder of a forfeited policy may get a fully paid-up policy, and of course you must calculate what he is to get in that policy. The actuarial language is very precise and very appalling to the uninitiated. I can well imagine an operative plumber, or perhaps someone else without the education which unquestionably the members of that trade get, reading this which tells what is to happen to him:—
The value of the policy is to be the difference between the present value of the reversion in the sum assured according to the contingency upon which it is payable, including any bonus added thereto, and the present value of the future net premiums.
I confess I should not understand it if were in the position of the operative who, I will suppose, is dimly trying to ascertain what he is to get.
§ There is, however, under this language undoubtedly some plain thing. It may be that the man will get all his policy, less 5, 10, 15, 20 or 25 per centum abatement. That he would understand at once. An actuary could readily strike an average in the manner in which I say it might be done. In the words of my Amendment it is simply that the value of the policy is to be the total of all premiums paid, less a deduction from such total at the rate of £5 per centum. The actuarial calculations must amount to something like that, or probably more than five per cent. It might in some cases amount to 25 per cent., but I would not hazard an opinion upon such a complex sentence. But if you adopt my suggestion the man will understand at once what he is to get. I should think it would be better to give him all premiums paid, less even 25 per cent.—a thing he will understand—than set him an arithmetical calculation to which few men would be equal, I think, unless they were members of the College of Actuaries. I beg to move.
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Amendment moved—
Page 35, leave out from the beginning of line 20 to the end of line 17 on page 36, and insert ("The value of the policy is to be the total of all premiums paid less a deduction from such total at the rate of £5 per centum").—(Lord Shondon.)
LORD PARAMORMy Lords, I am bound to say that I hope this Amendment will not be accepted. It is true that the form of words proposed by the noble and learned Lord, Lord Shandon, appears to be more easy of understanding by the ordinary reader than the words in the Bill, but this is a matter of actuarial calculation. So far as actuarial calculation is concerned, I saw no difficulty in understanding the Rules for valuing policies. I know that they have been very carefully considered by the Government Actuary, and I think the policy holder is safeguarded in this way. If any question arises as to whether under the Rules for valuing a policy interest of the policy holder has not been properly considered and the actuarial calculation has not been properly carried out, the Bill provides, as I understand, that the matter may be brought before the Commissioner. The policy holder, therefore, would have the advantage of the assistance of the Commissioner in a matter of that kind. This is purely a question of actuarial calculation, which I know has been very carefully considered, and I should deprecate making any alteration.
§ THE LORD CHANCELLORMy Lords, I am afraid I cannot possibly accept this Amendment. The words of the Schedule, I think, are clear. They are old words which have been used in other connections. The noble and learned Lord's proposal is that the value of the policy, for the purpose of issuing a paid-up policy, shall he calculated on the premiums paid, less 5 per cent. That really is actuarially impossible, because the value of a policy cannot possibly amount to as much as 95 per cent. of the premiums paid. The premiums paid from year to year on continuing policies go partly to pay expenses which, I am told, are not light. I am also told that if you adopted this principle in a very few years the statutory value of a policy would be much more than the sum assured, and that even the free paid-up policy which a man would get on that basis would be greater than the sum he would got if his policy fell in. 255 If this proposal were adopted it would very soon drive all the companies in the country into bankruptcy, and I cannot advise the House to adopt it.
§ LORD SHANDONMy Lords, I shall bow at once to the view of the Lord Chancellor, who, I am sure, has considered the matter with great care.
§ Amendment, by leave, withdrawn.