Art. VI.-ANNUITIES, LIFE INSURANCE, TONTINES, etc.

NUMBER L

It is no doubt unknown to many what astonishing and highly beneficial results can be produced, by a judicious and well-regulated system of economizing small sums, and accumulating them at compound interest; and I believe a description of the various practical purposes to which it may be applied will not prove uninteresting. It will, perhaps, scarcely be believed that it is in the power of every individual, in proportion to his resources, to gradually lay up a store, which in the course of years may shelter him from poverty, and render him independent of others, and of the necessity of becoming a burthen to his relatives and friends.

Very few can say, that they have not experienced, in the course of their life, some moments of comparative prosperity-when their income was not more than sufficient to meet actual wants and to satisfy moderate wishes, or when they could not manage to lay aside a trifle for a future day. Can anything be truer than the old saying " there is an ebb and a tide in every man's affairs?" Now if we had sufficient courage and wisdom to avail ourselves of every opportunity to lay a foundation for the future, there could not be a poor man in this world, except one morally or physically incapacitated to provide for himself.

There is, perhaps, no other country where changes of fortune are so rapid, where the spirit of speculation prevails so much, or where the value of every description of property is more fluctuating :-thousands are seen to fall from affluence to poverty, and vice versa, who would never dread the future, if they provided for themselves while they are able. The rich require but small efforts, but even the poor are not excluded, in proportion to their means, in forming a fund which at some future period, may effectually relieve them, and be quite welcome.

The only difficulty is, that notwithstanding the good example offered us for some years past by several States of Europe, we have no institution in this country in which these benevolent principles are fully carried out, or in which the necessary facilities are granted, so as to make them accessible to all classes of people. Our numerous Savings Banks no doubt do immense good, but they are only the first steps, and are not, by far, all we want, and all we ought to have. Their operations cannot go beyond certain limitsand most, if not all, limit the deposits to a certain sum. When this point is reached, the depositor is obliged to withdraw his money and look out for another investment, which is generally a matter of much difficulty for him, as he has not always knowledge or judgment enough to select a safe and profitable employment for it, and frequently becomes the victim of wild speculations, of fraud, and of the instability of almost all kinds of property and undertakings.

We have also Trust and Life Insurance Companies, where annuities and endowments are granted, and deposits of moneys are received, and for which a liberal rate of interest is allowed. In the New York Life Insurance and Trust Company, money can be deposited for any period over ten days, at 4 per cent, for less than two years, and 5 per cent, over two years. Special deposits are likewise received, to accumulate annually, at 5 per cent, compound interest.

Great as the advantages are, which these companies offer for the accu

mulation and saving of money, they would require many alterations, and a great increase of facilities, perhaps incompatible with their wishes and adopted regulations, to answer the various purposes of which these remarks are the subject.

An institution, combining the operations of a Savings' Bank with those of an Annuity and Life Insurance Office, and provided with a sufficient capital to insure confidence, would be most likely to fill the object, and to become not only profitable to the stockholders, but also very beneficial to all classes of the community, But my intention is only to show what could and should be done, and not to give a pattern of a company, and I will therefore limit myself to a description of the uses and advantages of an office established for the promotion of these principles.

My calculations are based upon an interest of 5 per cent, a rate which would yield a handsome profit to a company on a large scale, and at the same time be perfectly fair. No individual can re-invest immediately the dividends, and as compound interest is the great element in the acscumulation of money during a long period, it is much better for him to take 5 per cent, without any risk, than 6, or even 7 per cent, on bonds and mortgages, or bills receivable, which often turn out worthless, or on stocks, the value of which is constantly fluctuating. $1,000, at 5 per cent, compound interest, will produce in 10 years $1,628 90, and in 20 years, $2,653 30, while at 6 per cent, simple interest, in 10 years only $1,600, and in 20 years $2,200. Money will double, at 5 per cent, compound interest, in a little over 14 years, and at 6 per cent, simple interest, in 163 years.

The accumulation of a certain amount, after a number of years, by paying down now a lesser amount, in one sum, or by a number of partial payments, made regularly-annually, quarterly, monthly, etc., is called an endowment certain." A sum now paid, and gradually withdrawn in partial payments, during a number of years, is a "temporary annuity certain." A "deferred annuity certain," is a combination of the two former, by the payment of a present single sum, or a number of annual payments until a certain period, when, instead of the endowment, a future, cr as it is technically called, "deferred temporary annuity crtain," is obtained.

Annuities and endowments certain are distinguished from contingent annuities and endowments, by the former having no other agent for accu mulation than the interest, while, in the latter, the chances of life are also involved. The former terminate at a stipulated time-the latter when death, or some other cause affected by or calculated upon the average mortality, takes place. The first class will be the subject of this communication, and trusting that it will be found sufficiently interesting, I intend to show, in some future numbers of the Merchants' Magazine, the advantages of life insurance and contingent annuities, as applicable for the benefit of any class of people. ༢ ན་༧

The following practical examples will best explain the nature and ben

efits of

ENDOWMENTS CERTAIN.

c 1st. $100, paid in a single sum, will amount, at 5 per cent, compound interest,

By depositing that sum at the birth of a child, it will be entitled to $278 60 when it reaches 21 years; and might be withdrawn at any other time with such accumulation as may have accrued-the money not being lost, as in the case of a contingent endowment.

2nd. $12 per annum, paid

will produce, in 21 years.

15 years

10 years. 5 years

Therefore, by deposoting, from the time of birth until the age of 21 years,

$12 annually. $3 quarterly. $1 monthly. $450 06 $442 03 $440 24

the sum would be which would be repaid on reaching that age, by which means a capital would be secured for a son to set up business, or a dowry for a daughter, without loss of principal in case of premature death.

3d. On the same principle, if a person wished to secure a sum of $1,000, to be received at the age of 50, or of 60, a single sum, paid

would produce that result.

4th. The same sum would be obtained by paying annually, beginning at the age of 20, of

30

40

50

$14 33

$7 88

In both cases the depositer might be permitted to borrow a portion of his own money if he should be in temporary want, so that he would not only provide for the future, but always have the use of his money when wanted.

The great advantages we possess over Europe, in regard to the greater value of money, are plainly seen by the following comparison :-The National Loan Office of London allows to a person aged 20, for an annual payment of $2 60, a contingent endowment or benefit of $269 55, payable on reaching the age of 60, and returning two-thirds of the premiums in case of death. That sum, accumulated for 40 years, would produce,

At 3 per cent

4 per cent 5 per cent 6 per cent

$201 92

256 95

329 78

426 52

And therefore we could allow, at 5 per cent, $329 78, with the return of all the premiums with compound interest, in case of previous death.

TEMPORARY ANNUITIES CERTAN.

It is often desirable to set apart a certain sum for a special purpose,-to provide a student with the necessary means for his education at college-to assist a person by an annual contribution for a number of years-or, having other means in expectation after a certain period, to divide a present sum in such annual instalments as will be sufficient for our expenses.

5th. Suppose A., a student, requires for 5 years, annually, $300, payable every 6 months. $150, paid semi-annually, will accumulate, in 5 years, to $1,680 51; or, $1,316 72, paid in a single sum, will likewise produce $1,680 51.

6th. B. leaves a legacy to a friend, of $500 per annum, to continue for 15 years, and payable annually. $500 paid annually for 15 years, arə equal to $10,789 28; and a sum reserved for that purpose, of $5,189 86, will, at the end of that period, accumulate likewise to $10,789 28.

7th. In the 3d and 4th examples, an endowment has been obtained, of $1,000; but, as the interest, if re-invested, would only produce $60 at 6 per cent, and as a life annuity at the age of 50 only $85, if a male, or $78 70, if a female, and not being therefore sufficient, it might be desirable to convert it into 5 annuities certain, which would produce $230 97, or in 10 annuities of 129 50.

8th. A. has $10,000, which, at 6 or 7 per cent, would not bring a sufficient income, and be subject to some dangers. With that sum could be obtained, 5 annuities certain, of

$2,309 74

1,295 04

963 42

802 42

20

commencing the first one year after the deposit. His income would be considerably enhanced, but the principal would be gradually absorbed. To avoid the danger of being left destitute, if he had no other resources, he might, however, purchase a contingent endowment, payable at the end of his annuities, which, if he lived at that period, would reinstate him in the possession of the original $10,000, with which he can renew the same two bargains, and on still better terms; as he would have to pay less for the endowment, being much older, and therefore less likely to live at the expiration of the new term. There being a possibility of his dying before the endowment is due, the premium paid for it would be much less than the increase of income-but his heirs would receive only the balance left of the $10,000, in case of his death.

DEFERRED ANNUITIES CERTAIN,

By the deposit of one single sum at an early age, or by continued regular annual payments, as in the case of an endowment, quite a considerable income may be secured for old age, with constant means on hand for cases of sickness or temporary want.

9th. With the small amount of $50 a year, an annuity certain can be procured, to commence at the age of

50

60.

Payable in 10 paym'ts. In 20 paym'ts. In 10 paym'ts. In 20 paym'ts.

$782 20

$484 66

and therefore a person, by saving $1 a week for the space of 40 years, would secure an annual income of $782 20, during 10 years, or of $484 66 during 20 years.

The education of children is frequently a very heavy tax for parents in moderate circumstances. As long as they are small, the expense is still moderate; but when they approach the age of 10 or 12, the outlay is rap

id'y increasing. Now if an early provision were made, and the expense divided and equalized during a longer period, the burthen would be materially diminished, and scarcely felt.

10th. Supposing that a child would require an outlay of $100, annually, from the age of 13 to 18, or 6 payments-18 payments of $24 17, commencing at birth, or 13 payments of $28 65, commencing at the same period, would provide that sum.

Numerous other examples could be given to show the immense advantages produced by such a system of economy and gradual improvement of money, and a variety of cases shown to which they could be applied, but they would require more space than could be allotted to me. I cannot refrain, however, from citing a most admirable plan adopted in France, by the "Banque de Prevoyance," (Bank of Foresight.) This institution receives deposits withdrawn from the Savings Bank, when they have reached the maximum of 2,000f., ($400,) beyond which no money is allowed to remain there.

The depositors are formed into classes, composed 10 or 12 members of nearly the same age, say from 20 to 25, 40 to 45, &c., and the aggregate received from each class invested, in its name, in government securities, and the stock delivered to the "Caisse de Depôts et Consignation" for safekeeping, where it remains until the class is closed, the Banque de Prevoyance having no control over it, collecting, however, the interest, and crediting it to each class, with a deduction of 3 per cent for commission, which is the only compensation for the trouble.

Some of the classes divide the interest among their members as soon as collected; others accumulate it for 5, 10, or more years. Should one of the members die, his principal remains until only one member survives, and in the meantime all the interest is divided among the survivors, so that their income is gradually and considerably increased. When the class is clossed by the death of all but one of the members, the principal is returned to the heirs of the deceased, except when the agreement has been made that also the principal should belong to the survivor, on the Tontine principle.

Berlin, and Stuttgart, in Germany, possess similar societies, though with somewhat different regulations. In the one of Berlin, which was instituted under the direction of the Prussian Government, there are six classes, composed as follows:-1. Members under 12 years of age; 2. From 12 to 24; 3. From 24 to 35; 4. From 35 to 45; 5. From 45 to 55; 6. Above 5 years old. Sub-divisions are made, composed of those joining in each year-their joint deposits being separately administered, and the interest of investments credited to them. A member may take one or more shares, of 100 rix dollars each, and receive annually his part of the interest on each-or he may take one or a limited number of partial shares, to which the interest is regularly added, until it reaches the value of of a full share. When a member emigrates, or dies, his original deposit is returned, with the deduction, however, of whatever has been paid to him in the shape of interest. The effect is, that this deduction increases the fund of the sub-division to which he belonged, and in the course of time such additions to it may cause (as it is expected,) the income to reach 150 per cent of the original deposit.

With some improvements, these plans ought to be imitated in this country, being, in my opinion, based upon sound and benevolent principles.