ON THE APPLICATION OF LIFE INSURANCE TO FORMING ENDOWMENTS, [From Ellis on Fire and Life Insurance, p. 164. See, in connection, Chapter XII. of the preceding Treatise, § 275. 1. Where the income terminates with Life. 2. Where the Income is to be transmitted to an Individual of a Family. 3. Where the sum Insured is to be paid to a Parent on a Child attaining a certain Age. 4. Where the Life of a Child is insured, to whom an Advance has been made. 5. Where the Creditor insures the Debtor's Life. 6. Insurance Money settled upon Marriage. 7. Insurance for the purpose of meeting Fines, &c. payable on the Dropping of a Life or Lives. 8. Insurance by way of Security on an Annuity Transaction. A FEW observations upon the practical uses of Life Insurance, with such remarks on the legal bearings of the subject as occur, may not be misplaced in a work of this nature. 1. The system of Life insurance, if judiciously and prudently ap plied, is of invaluable use in enabling a parent to provide for a family, when his income principally depends upon his own life or exertions, as in the case of professional men, traders, annuitants, and persons holding places or pensions. 2. Where, although the income arising from property may be transmitted to one or more of his children after him, there may be danger that others of his children may be inadequately provided for, as in the case of a tenant for life, with remainder to the eldest son in fee or in tail, in which cases, although there is generally a provision for raising portions for younger children, yet frequently to an amount very inadequate to the support of the younger branches in those habits in which they have been brought up in common with the elder son; in such a case, a father, tenant for life, can by a moderate H curtailment of his expenditure to a fixed limit within his income, make a much more ample provision in ordinary circumstances, than he would be likely to do, unless very diligently careful, by investing in the funds or other securities the same amount of savings from his income and for this reason, that individuals in general in their savings operate by simple interest, whilst life insurance companies work by compound. Besides which advantage, by the practice of those offices where a division of profits is made, considerable additions are frequently made, by way of bonus, to the sum insured, to an extent which the insured never contemplated. The difference between individual saving and the working of an insurance office will appear by the following simple statement, and without taking the bonuses into calculation: supposing a man of thirty to save 2007. a year until he is sixty, which is sometimes more than he is entitled to expect, according to the ordinary calculations of human life, he will have accumulated only 6,0007.; but according to the average rate of premiums paid at most offices, a man of thirty can for about 27. 10s. insure 1007.; and, therefore, by the payment of a premium of 2001. will at once entitle those whom he may select to receive 8,000l. even if he should die the next day after insuring; but if he should live to the average limits of human life, he will be entitled then to receive, not only that sum, but also an addition by way of bonus, which has been known to be more than equal to the sum insured. As before observed in a preceding chapter, where the proceeds of a policy of insurance, together with all sums of money, benefits, and advantages to arise or accrue upon it, (a) are settled or given by will, the parties interested will take the proceeds, together with the proportionable share of bonus or accumulation. 3. A parent may insure a sum of money to be paid to himself in the event of a child (or one or more children) attaining twenty-one, or any given age at which it is probable that a sum of money may be requisite for the purpose of advancing the child in life. Here the objection sometimes made against life insurance is obviated, that the insured has not the satisfaction of reaping the benefit of his frugality himself, for by this operation he is enabled to see his family provided for in his lifetime. (a) Courtney v. Ferrers, 1 Sim. 137. 4. So where a parent may have advanced any sum of money to a child, either by way of provision, or to establish him in any trade or business, he may properly treat such an advance as a debt, and secure himself from the loss which would arise by the premature death of the child, by insuring the child's life to the amount of the sum advanced. 5. The case of a creditor insuring his debtor's life is so obvious, and has been in a preceding chapter so far considered as to its legal bearing, that it is almost unnecessary to enter into it. (b) It may, however, be observed, that where the debt depends alone upon the personal security of the debtor, as is generally the case when the creditor insures, it is the most effectual security the creditor can have under the circumstances; as he then depends not only upon the personal credit of the debtor, but he has also the benefit of his own care and caution; for if the debtor fail to pay the premiums, the creditor may, upon his failure, keep up the policy; and even if the debt be paid, he may still practically, although not legally, have the benefit of the policy, if he chooses to keep it on foot; for although by the statute, the interest of the creditor ceasing by payment of the debt, he cannot recover, yet as the officers never take the objection in a bonâ fide case, (c) he may still treat the policy as a valuable and salable security. Where a party advances a loan of money to another upon the security only of an estate for the life of the borrower, at legal interest, there appears to be no objection to his compelling the borrower to insure his life, and pay the premiums, for the lender does not thereby "take directly or indirectly "more than legal interest; the borrower, by insuring, only secures the principal to the lender, in case of his death, the only security which he may have the means of giving. "Thus too," observes Blackstone, (d)" on a loan, if the chance of repayment depends on the borrower's life, it is frequent (besides the usual rate of interest) for the borrower to have his life insured till the time of repayment, for which he is loaded with an additional premium suited to his age and constitution. Thus if Sempronius has only an annuity for his life, and would borrow 1001. of Titius for a year; the inconvenience and general hazard of this loan, we have (b) See § 275. (c) See ante, Barber v. Morris. (d) 3 Bla. Com. 459. seen, are equivalent to 57., which is therefore the legal interest; but there is also a special hazard in this case, for if Sempronius dies within the year, Titius must lose the whole of his 1007. Suppose this chance to be as one to ten, it will follow that the extraordinary hazard is worth 107. more, and therefore that the reasonable rate of interest in this case would be 15 per cent.; but this the law, to avoid abuses, will not permit to be taken: Sempronius therefore gives Titius, the lender, only 57. for legal interest; but applies to Caius, an insurer, and gives him the other 10l. to indemnify Titius against the extraordinary hazard. The principle upon which it has been held usury for the grantee of an annuity to compel the grantor to insure and pay the premiums is different. There the grantor pays annuity interest instead of legal interest; a contract, therefore, compelling him to keep up insurance at his own expense, would be in effect a contract to pay 10 or 15 per cent. for a loan of money, without any hazard of the principal. The principle of an annuity is, that the principal money is gone, the yearly payment of the annuity being the compensation for it. 6. It is not unusual for persons about to marry, amongst other modes of provision for a family, to covenant with the trustees to insure their lives to a certain extent the objects and proportions in which the sum insured is to be distributed, at the death of the party, are pointed out by the trusts of the settlement. In such cases, however, it is the safer course that some property should be assigned to trustees to enable them to pay the premiums in case the insured should make default. It may be observed, on the other hand, that great care and consideration are requisite, before any person is induced, either from conscientious motives or the cupidity of others, to covenant with third persons to insure. In the case of marriage settlements, where trustees are interposed on the behalf of the married lady and her issue, as neither a married woman nor infants under age are capable of giving any legal consent, and trustees are bound by their duty to enforce the performance of the covenants, not only in behalf of the lady, but the issue which may be born; they have no power to modify or adopt the amount of insurance to the circumstances of the parties, after the covenants are once entered into, and the marriage has taken effect. A person then who has been unadvisedly induced to covenant to insure to a large amount, may find that in the contingencies of life, he has no longer the disposable income he contemplated, and therefore may be utterly unable to keep up his insurance, whilst at the same time the trustees, from the danger of future responsibility to the parties interested in the settlement, are driven unwillingly to the necessity of attempting to enforce the contract, an attempt which cannot fail to be productive of great inconvenience, or ruin, to the party insured, as well as to the family prospectively provided for. A case has occurred in the author's experience, showing how very harshly this mode of settlement might operate to the parties more immediately interested, if improvidently entered into, that is to say, unless a party covenants to insure for such an amount, and such only as he has a moral certainty, after making every allowance for the ordinary expenditure of a family, and the possible decrease of his income, that he can conveniently provide the premiums. A gentleman, upon his marriage with a lady of considerable fortune, in consideration of that fortune, &c., covenanted with the trustees to insure his life for 20,0007.; the interest thereof at his death to be paid to the lady for life, and after her death the principal to be paid to the children, subject to a power of appointment, and he also conveyed certain real estates to the trustees of larger annual value than the premiums amounted to, in trust to pay the premiums out of. the rents and profits in case he should make default. In course of time, he became embarrassed in his circumstances, and the trustees found it necessary to enter upon the estates for the purpose of paying the premiums; the rents and profits of these estates, in the mean time, had become so reduced as to be barely sufficient to pay them. The husband lived apart from his wife, and there were no children of the marriage; neither husband or wife had any property remaining but the trifling surplus of the rents and profits of the real estate, after payment of the premiums of insurance. The husband had also by the settlement covenanted with the trustees to allow his wife an annuity by way of pin-money, with which the estates conveyed were also charged, and there was no appearance upon the deed that the keeping up of the insurance was of primary obligation. Upon a bill filed for the administration of the trusts, the Vice-Chancellor, willing to relieve where opportunity offered, made a declaration that the keeping up the insurance, and the payment of the annuity, was of equal obligation upon the trustees, and referred it to the Master to inquire and state which of the policies of insurance, and to what H* |