Disadvantage of Continuous Premium Payments

The chief objection usually advanced against ordinary life insurance is the continued payment of the premium throughout life. This objection, however, is more apparent than real, and may at the option of the insured be obviated to some extent by allowing the annual dividends to accumulate with the company with the view of either shortening the premium-paying period or hastening the maturity of the contract. Under the first option the contract becomes a paid-up policy for the full amount after a period of years thus requiring no further premium payments the insurance, however, being still payable at death only. Under the second option the dividend accumulations on the policy cause it to mature as an endowment at an earlier age, thus enabling the insured to realize the proceeds before death occurs.

The cash surrender and other options allowed under an ordinary life policy may also, under certain circumstances, make desirable a discontinuance of premium payments. Changing circumstances may cause the insured to desire the taking of any one of three important options customarily allowed by the companies. If the policy has served its protective purpose and the insured is satisfied that the change in his circumstances is such as no longer to require insurance protection and does not wish the full face value of the policy for legacies or bequests, he may surrender the policy to the company for its cash value. Or, instead of taking the cash value, the insured may choose the option of stopping premium payments and taking a paid-up policy, payable upon death to his estate or designated beneficiary. The amount of paid-up insurance which the companies grant after the policy has been in force a specified number of years is indicated in column three of the preceding table, and represents the amount of insurance that can be purchased at the then attained age with a net single premium equal to the surrender value. The amounts, it will be observed, are very considerable in the later years, the face value of the paid-up insurance granted on the $10,000 policy, after the same has been in force twenty-five years, being $6,380.

Lastly, it may happen that the policyholder contracts some fatal disease or meets with some accident which incapacitates him for the earning of future premiums. Under such circumstances the necessity for insurance is greater than ever, and the policyholder is allowed to avail himself of the option of "extended insurance", which means that he can without further premium payments enjoy the full benefit of his original policy for a designated number of years and days. This option may also be chosen, even though the ability to pay premiums continues, when the insured is satisfied that his physical condition is such as to prove fatal before the expiration of the term during which extended insurance is granted. The duration of the term of extended insurance as allowed by the companies will again depend upon the cash value of the policy, which is used as a single premium to purchase insurance at the then attained age. The respective amounts on the $10,000 policy, used for purposes of illustration, are shown in the fourth and fifth columns of the preceding table. Thus, it will be observed, for example, that after this policy has been in force nineteen years it may be extended for its full face value, without further premium payments, for a term of fifteen years and two hundred and sixty-one days.