Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

A Critique of Monetarist and Keynesian Theories 593clearly handed over and the full availability of them lost, inexchange for the guarantee of a substantial income or capitalunder certain future circumstances (those in which a family’sneed may be greatest, such as the death of a provider or survivalbeyond a certain age).Second, most life insurance operations do not permit thepossibility of obtaining the surrender value immediately, i.e.,from the moment the contract is signed and the money is paid.Instead there is generally a waiting period, which, dependingupon the market and legislation, varies in length from two tothree years. Only after this initial period does the customeracquire the right to a surrender value.Third, surrender values do not approximate the totalamount paid to the insurance company in premiums, sincethey are reduced by the initial costs of the policy, which areamortized over the entire duration of the policy and which,for technical and business reasons, tend to be rather high andare paid when the policy is purchased. Moreover the surrendervalue normally includes a penalty fee in favor of theinsurer to further encourage customers to carry their policiesto maturity. Thus it is obvious that life insurance operationshave been designed to discourage the surrender option asmuch as possible, so that policyholders are only willing toexercise it in situations of urgent family need or when theywish to change insurance companies. Therefore subjectivelyspeaking, we must conclude that for most customers traditionallife-insurance operations do not mask deposit contracts. 107107 Although the arguments expressed in the text are more than sufficientto show that traditional life insurance is not a mask for demanddeposits, from a legal and economic standpoint we cannot be absolutelycertain unless insurers cease to guarantee a predetermined surrendervalue and limit this amount to the market value acquired at any specificpoint by the investments corresponding to the mathematical reserves ofany particular policy. In this case no one would be able to claim a rightto a predetermined surrender value; a customer would only be entitledto the liquidation value of his policy at secondary market prices. Neverthelessthe difficulties insurers encounter in assigning specific investmentsto each policy, difficulties which stem from the long-term nature