Insurance Policy Time Frames

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"Industrial" is the polite word used to cover a group of policies with weekly premiums, offered by a number of companies. So many people pay these weekly premiums that in spite of the small size of individual policies, their total volume is about one tenth of all life insurance issued by U.S. companies.

A year's total of the net payments on an industrial policy is roughly 40 percent higher than when the premium is paid in one sum annually on a comparable policy. Of course, a company incurs extra expense in collecting premiums weekly and keeping records on small policies, but the extra charge looks excessive. Let us hope that none of our readers is careless enough to buy industrial life insurance. Industrial insurance is often bought on a baby's life. Parents' paying insurance premiums at the exorbitant weekly rate to protect themselves against the risk of a baby's death is probably the craziest of all the wacky practices in life insurance.

Monthly premium rates are cheap compared to the weekly, but a monthly rate, multiplied by twelve months, is five to eight percent higher than the annual single-payment rate on the same policy. Remember that in paying monthly, compared to annually in advance, the average delay in payment is less than half a year, so that the extra charge in these monthly rates is equivalent to an annual interest rate of 10 to 16 percent. If a buyer can borrow from the insurance company or a bank at an honest annual rate of five or six percent on the remaining unpaid balance, he had better borrow the money needed to pay his premium annually rather than monthly.

Quarterly premium rates are four or five percent higher, and semi-annual rates are two or three percent higher, than annual. Obviously a policy-owner had better pay annually or semi-annually, unless he expects to die within the year!

When a buyer wants a policy with a death value larger than the minimum required, he can split up his premium payment without incurring extra charge by taking out two or more policies, each as large as the minimum, and spacing their dates through the year. Suppose the minimum death value is $2,500, and a man desires $15,000. He can buy six policies, with annual premium dates two months apart.

The best way to select a policy is to study one of the manuals of the industry. But poring over the mass of figures takes a lot of time, and is hard on the eyes. And the manual's figures on cost are misleading and need to be corrected by using compound-interest tables, as we will show. The writer uses the Unique Manual (published by The National Underwriter Company, 420 East Fourth Street, Cincinnati 2, Ohio). Its 1956 edition contains information on 1,100 companies. Besides quoting rates on policies, it gives statistics on the financial standing of the companies.

The next-best way to select a policy is to find, if possible, an agent or broker who is both honest and knows where to look. A good agent will steer investors away from risky stocks with high premiums, and will advise you about the proper amount of life insurance you should carry.

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