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The Policy Contract

Income or Guaranteed Interest Provisions : In all cases I56 where, instead of a lump sum at death or at the comple tion of the endowment period, an income is to be given for a term of years or for life, and then the principal sum is to be paid, if the income is more than 3 per cent., 3i per cent. or 4 per cent. (whichever rate is employed by the company in computing its premiums) on the principal sum, a premium is really charged for an insurance for the principal sum plus an amount equivalent in value to the income guaranteed in excess of the rate counted upon.

Surrender Provisions : In most policies nowadays sur render privileges are available after three years, in some after two years and in a few after one year. The insured is usually allowed the option of a cash value, a paid-up insurance value or an insurance for the full amount for a limited term. Sometimes a value in a paid-up life an nuity is also offered. The extended insurance is always non-participating; the paid-up insurance granted is also nearly always non-participating. According to the terms of some policies, and under the laws of some States, sur render must be within a limited time after failure to pay a premium; but under the laws of most States and the provisions of most policies nowadays either the extended insurance or the paid-up insurance usually the former takes effect automatically upon failure to pay a premium, and if either of the other values is preferred, it must be applied for within a short period of time.

Non-forfeiture : When the privilege of surrender for paid-up insurance was first put into policies and for a long time afterward, it was called a "non-forfeiture" pro vision, though it might not be available unless the policy was surrendered within six months after failure to pay a premium. In like manner, inaccurately, though with more reason, a provision that on failure to pay a premium the extended insurance surrender value shall at once at tach, is called' "automatic non-forfeiture;" BUt under 157 such a provision the benefits of the original policy lapse and it is converted into paid-up, non-participating term insurance. The original rights can usually be restored

only upon proof of good health and the payment of over due premiums with interest.

An interesting form of real "non-forfeiture" has come into use with the last two decades, having been introduced by the author of this book in 1894. It was copied from the practice of the Australian Mutual Provident Society and consists in charging the premium up as a loan at once upon a default in payment, provided the value of the policy, in excess of existing indebtedness and interest, will cover the loan and in continuing this process until these advances exhaust the value. The policy remains of the same nature as if the premiums were all paid in cash. One or two companies which employ this, plan have required proof of good health as a condition to re sumption of payment; but this is not consistent with the fact that the premium has been advanced against the in sured's own funds. There have also been other abuses of the plan, abuses now happily discontinued. The usual practice is to permit resumption of payment at any time before the value is exhausted, the overdue premiums and interest thereon being either paid in cash or permitted to stand as a loan.

Loans : Loans to the full amount of the cash values at the end of the year, interest being paid in advance, are generally allowed under all policies issued' nowadays. Some companies, however, limit the loans to a part only of the cash value. A special form'of loan provision prom ises to lend a given amount, according to the policy year, provided the premiums are paid up to the end of the next policy year. The loan values in such a case are usu ally equal to the full reserve or, if there are' cash values, to the full cash values at the end of the next year; but 158 out of the loan must be paid, first, discount to the end of the next policy year, and, second, the premium or pre miums to the end of that year. These deductions should be made in calculating what will be the net avails of any such loan.

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insurance, value, premium, loan and cash