Financial Liabilities--and Insurance

The FINANCIAL COUNSELOR

by ARTHUR W. JOYCE

SMITH and his wife, with their two young children, live just about as thousands of similar American families live. They own their own home, which is comfortably furnished, and they own an automobile. Their life is the usual one in such a setting — business for Smith and home management for his wife, supplemented by their social activities; As the breadwinner. Smith is the keystone in the family’s financial arch. He knows that he has certain obligations to meet currently, but they are largely within his control, and since he earns a fair income he is not unduly concerned about them. He knows also that he laces definite financial liabilities, not wholly within his own control, which loom so large in proportion to his means that the strain of having to meet them unprepared would be disastrous. What are these liabilities, and what kinds of insurance does he have as a safeguard against, them?

Now Smith realized that insurance was available to cover almost every measurable risk; so he began consideration of the subject by analyzing his risks and classifying them in the order of their gravity, considering their effect upon his family as a whole. He found that these risks naturally divided into two groups — those which affected his earning power, and those which affected his property. He rightly decided that risks involving his earning power overshadowed risks associated with his property, because his insurable property simply represented a comparatively small fraction of his past earnings, and thus was not as vital as the earning power itself.

The most serious threat to earning power is death, which ends it irrevocably. For this reason, Smith’s first, concern, quite properly, was to secure Life Insurance. He could also, of course, insure his wife’s life, since her loss would be a disaster of the first magnitude, but he considered that, until his own life insurance programme was well advanced toward completion, protection on his life was far more vital to his family s future than insurance on his wife would be to him.

The next most important risk which he feared was what might be called economic death — that is to say, disability in which life continued but work was impossible, either for an extended period or permanently. Such a condition could arise through accident or ill health. Lite insurance alone, as a by-product of its primary function, does an excellent job in this field. Its value for disability from any cause exists in such supplementary features as its “Total and Permanent Disability Income’ and its ‘Disability Premium Waiver’ clauses, available separately or jointly. The former provides a guaranteed income from the insurance company, and the latter waives payment of all premiums by the insured as long as the continues. It is true that these disability benefits of life insurance do not begin until a waiting period of several months has elapsed, after which the continuance of the disabled condition is presumed to indicate its permanence; nevertheless they are of tremendous value, and Smith’s inclusion of these features in his life policies gives him this added protection well through his years of maximum earning power.

Another serious risk is that of short-term disability arising from comparatively minor accidents or temporary illnesses. Against the pure accident risk, Smith has Accident Insurance, because he knows that it functions immediately, in addition to continuing indefinitely if necessary. It thus outranks the disability benefits of life insurance in the promptness of its relief, and ranks equally with it for any accidental incapacity which may be permanent. These accident policies not only provide weekly income for the insured, but may also include certain indemnification for such things as hospitalization and medical costs, and even a substantial settlement for the beneficiary in case of death resulting from accident. In conjunction with accident insurance, Health Insurance is also available. Its income benefits are prompt, and, while often limited in duration to, say, a year, may nevertheless be obtained permanently if desired. The question as to whether the accident risk is greater than the health risk is a broad one, varying with individual conditions. Smith knew that, as a comparatively young man, his chances of serious disability from accidental causes were definitely the greater of the two.

With the above forms of insurance designed to replace his earning power in the event of his own physical hazards. Smith turned next to consider the many financial liabilities which the complexities of modern life forced upon him. He knew that, while these liabilities did not directly threaten the source of his earnings, they nevertheless would be a body blow to his finances if they arose. It is in this sphere that the simplest home and social activities present a perhaps unsuspected menace. Consider, for example, such a routine matter as the regular calls of the daily tradespeople. Suppose that the milkman, who has called thousands of times without difficulty, should happen one time to fall in the dark over some unexpected object — say the children’s express wagon standing in his proper path — and sustain serious injuries; or suppose that the grocer’s boy, clattering down the back steps, should chance to catch his heel in a loose plank and plunge with a broken leg below; or again, suppose that the housemaid should crash to the floor with a broken bone simply because the stepladder, long wobbly, finally collapsed under her. These things are caused by negligence, and the law rightly considers that it is the home owner’s, or occupant’s, negligence. It is true that liability for this negligence may never have to be established in court, simply because the injured person may be content with the voluntary payment of his accident expenses by the home owner himself; but let one of these all too frequent occurrences result in a lawsuit for heavy damages, and the home owner’s position becomes unpleasant, to say the least. Because Smith wanted protection against such damage suits, he took out Residence Liability Insurance, feeling that his risks along these lines were altogether too serious to ignore.

Then, of course, there is the automobile ‘our delightful man-killer.’ The liabilities of its owner are so appalling that it is difficult to understand how anyone would dare to be responsible for its use without first providing himself with reasonable protection. For this purpose, Smith has Automobile Liability Insurance. This coverage is mandatory in some states, primarily as a source of financial redress available to accident victims. It indemnifies the insured against damage suits resulting from personal injuries to outsiders caused by his ear, whether driven by himself or by some other person with his consent. Any serious injury to people involves considerable medical expense, and when to such charges there is added the loss of earning power by the victim, and possible damages for death itself, it is apparent that the total liability may reach substantial proportions. Another liability of his automobile which Smith felt that he wanted moderate protection against has to do with damage to other people’s property. The risk from this source is definitely less than that involving damage to people; still, a claim under it is always unpleasantly large, and the Property Damage policy which Smith has eases his mind considerably.

Turning next to his insurable property, Smith realized what a disaster the destruction of his home by fire would be, and his Fire Insurance premiums are always met promptly, because if it were not for this protection he would not dare own his home, and could not have arranged for its mortgage. Within his home, the fire threat to furnishings is serious, even though definitely secondary to the loss of the house itself, and the Household Furnishings Fire Insurance which he has against this risk was written up with due regard for the fact that such property depreciates in value very rapidly. The automobile also is subject to this same fire hazard, and his Automobile Fire and Theft policy provides protection against theft in conjunction with loss by fire.

With regard to theft losses, Smith realized that the vast bulk of his household furnishings were not particularly tempting to burglars or sneak thieves, who would, however, be attracted like steel to a magnet by valuable silver and the family’s jewelry; so he has a Residence Burglary policy as a precautionary measure, in an amount proportionate to his particular risk.

With these different kinds of insurance in force to protect him against loss of earning power, legal liabilities, and loss of property, Smith stands well prepared for the unexpected. He has gone one step further, and has prepared for a financial liability of wholly pleasant aspect — namely, the educational expense of his two children when their college days arrive some years hence. He considered this expense to be an addition to the living income for his family which his backlog of life insurance will provide. To meet, it, he has taken additional life insurance, payable directly to his children in convenient installments during their college years. If he lives through these years, he knows that the cash values of these Educational policies will help him to meet this expense if necessary; if he should not survive, he already has the deep satisfaction of knowing that the completed education which his children deserve will be provided beyond question.