1 / 13

life insurance iii: measuring the cost of insurance

LIFE INSURANCE PRICING. Mortality tableAge cohortradix, lx, dxNet premiumGross premium. LIFE INSURANCE COST COMPARISON METHODS. Traditional/Projected net cost methodInterest-adjusted cost methodsSurrender cost indexNet payment cost indexBelth's Formula. TRADITIONAL NET COST METHOD. Total premiums paid over t years ? Dividends received over t yearsNet premiums paid over t years ? Policy cash value at end of t years

Anita
Télécharger la présentation

life insurance iii: measuring the cost of insurance

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

    1. LIFE INSURANCE III:MEASURING THE COST OF INSURANCE

    3. LIFE INSURANCE COST COMPARISON METHODS Traditional/Projected net cost method Interest-adjusted cost methods Surrender cost index Net payment cost index Belths Formula

    4. TRADITIONAL NET COST METHOD Total premiums paid over t years ? Dividends received over t years Net premiums paid over t years ? Policy cash value at end of t years Net insurance cost Net cost per year = Net insurance cost/t years Net cost per $1000 = Net cost per year/face (000s)

    5. TRADITIONAL NET COST: EXAMPLE Assume: - 25-year old male - $25,000 death benefit - two cash value policies nonparticipating policy annual premium = $250.75 participating annual premium = $341.50

    6. TRADITIONAL NET COST-contd Nonpar Policy-10 years Premiums $2507.50 Dividends ? 0 Terminal Div. ? 0 Cash Value ?1750.00 Net Cost $ 757.50 Net cost per year = $757.50/10 = $75.75 Net cost per $1000 = $75.75/25 = $3.03

    7. TRADITIONAL NET COST-contd

    8. INTEREST-ADJUSTED COST METHOD:SURRENDER COST INDEX Rationale: Assume the insured survives t years, then surrenders the policy for its cash value. IASC is equivalent annual cost per $1000 of coverage, given opportunity rate. t years premiums compounded at opportunity rate ? t years dividends compounded at opportunity rate Net interest-adjusted premiums paid over t years ? Cash surrender value at end of t years Interested-adjusted insurance cost (IAIC) at year t Interested-adjusted surrender cost (IASC) = IAIC/[FVIFA i,t ? (1 + i)] Surrender cost index = IASC/face (000s)

    9. INTEREST-ADJUSTED SURRENDER COST INDEX Nonpar Policy-10 years FV Prem. @ 5%* $ 3311.60 FV Div. @ 5% ???????????????0 Terminal Div.-yr 10 ? ????????0 Cash Value-yr 10 ???1750.00 Interest-adjusted insurance cost (IAIC) $ 1561.60 Interest-adjusted surrender cost (IASC) per year = $1561.60/13.2068 = $118.24 IASC per $1000 at end of yr 10 = $118.24/25 = $4.73 * Future value annuity due

    10. INTEREST-ADJUSTED COST METHOD:NET PAYMENT COST INDEX Rationale: Assume insured dies at end of comparison period --therefore, ignore the terminal dividend and the end-of-period cash values in computing the net payment cost values. t years premiums compounded at opportunity rate ? t years dividends compounded at opportunity rate Net interest-adjusted premiums paid over t years Net payment cost (NPC) at year t = Net interest-adjusted premiums/[FVIFA i,t ??(1+i)] NPC index = NPC/face (000s)

    11. INTEREST-ADJUSTED SURRENDER COST INDEX Nonpar Policy-10 years FV Prem. @ 5%* $ 3311.60 FV Div. @ 5% ???????????????0 Interest-adjusted payment cost (IAPC) $ 3311.60 Interest-adjusted payment cost (IAPC) per year = $3311.60/13.2068 = $250.75 IAPC per $1000 at end of yr 10 = $250.75/25 = $10.03 * Future value annuity due

    12. BELTHS FORMULA (P + CVP)(1 + i) - (CV + D) BF = (DB - CV)(0.001) where: BF = yearly price per $1000 of protection P = annual premium CVP = cash value at end of preceding year i = insureds opportunity rate CV = cash value at end of current year D = dividend in current year DB = death benefit at end of year Compare BF to age-adjusted benchmark values

    13. BELTHS FORMULAAGE-ADJUSTED BENCHMARKS Age Benchmark Price Under 30 $ 1.50 30-34 2.00 35-39 3.00 40-44 4.00 45-49 6.50 50-54 10.00 55-59 15.00 60-64 25.00 65-69 35.00 70-74 50.00

More Related