The object of these notes is to give a brief introduction to the treatment of proposals for life assurance which are not acceptable at ordinary rates.

In theory, the extra premium charged for a certain type of case should be based upon the abnormal mortality which is expected. Little, however, is known about the rates of mortality applicable to any class of extra risk, while in practice extra premiums involve a comparatively small amount of cash and cause much trouble, particularly to the outside staff. The imposition of extra premiums is therefore restricted as far as possible, and a tendency towards their virtual abolition would probably be much accentuated, but for fears that to do so might involve an undesirably large influx of second class business.

The law which governs life assurance contracts, their formation and their execution is, to a very large extent, the same law as that which governs mercantile contracts generally. The titles to life policies are affected by the law of contract, of mortgage, of partnership, and so on. There are, however, some legal principles and statutory provisions which affect life assurance alone, and among them are the following sections in the Married Women's Property Acts, 1870 and 1882.

Married Women's Property Act, 1870, Section 10.

A married woman may effect a policy of insurance upon her own life or the life of her husband for her separate use, and the same and all benefit thereof, if expressed on the face of it to be so effected, shall enure accordingly, and the contract in such policy shall be as valid as if made with an unmarried woman.

This type of policy was introduced into British Life Office practice some three years ago and rapidly proved most attractive; so much so that a leading office announced that it obtained over £2,000,000 new Sums Assured under this class of contract within a year of issuing the prospectus. Details of the schemes of no less than forty-six offices are available. On the academic side, the examiners have shown their appreciation of its possibilities by setting questions concerning calculation of premiums, valuation, etc., in the examinations of both the Institute and the Faculty of Actuaries.

Sufficient time has now elapsed since the commencement of this type of business for the problems involved to force themselves into notice. Certain of these problems are dealt with in the following note.

These notes assume the reader knows the general principles on which bonus reserve valuations are made.

The essential idea is to value as a liability the amounts the office will be liable to pay as sum assured, bonus and expenses, setting of f as an asset the amounts the office will receive—the office premiums. The valuation must be based on really accurate estimates. We must use the mortality we think will prevail and the interest we think can be relied on in respect of existing business. Admittedly bonus is uncertain—a valuation of future bonus does not guarantee it—but the valuation must be as accurate as possible. The bonus allowed for will be realised if the conditions assumed prevail in future.

The table of mortality is usually a standard table to which the experience of the office may be regarded as an approximation, but need not necessarily relate to the same class of life. The essential qualification of any table for use must be that it is a real approximation to the likely future experience of the office for which it is used.