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9 Cards in this Set
- Front
- Back
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Unbundling |
With term and guaranteed whole LI, three pricing factors (mortality costs, investment returns & expenses) are bundled together & fixed for the life of the contract. With UL policies they are unbundled and not always fixed. UL policies disclose how costs, investments etc...are applied to the policy. The CV (cash value) is the value of the investment account(a) within the policy- and may or may not equal the CSV (cash surrender value) depending on surcharges |
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Timing and amount of premiums |
Minimally vs maximumly funded UL policies |
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Modal Factors for UL policies |
For most UL policies the modal factor is (1/number of payments per year) typically insurer doesn’t use the modal factor because annual and annualized premiums are often the same |
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Pricing the Insurance component |
The mortality cost deductions that the insurer draws from a UL policy’s investment account are a reflection of the net amount at risk and the mortality costing used |
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Net Amount at Risk (NAAR) |
NAAR = death benefit - investment account value * for term life policy the amount at risk is the death benefit, for perm life (incl. UL) build up a policy reserve which decreases the amount at risk for the insurer. |
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Year Renewable Term (YRT) |
Mortality costing of the cost of insurance (COI) is usually expressed as a dollar amount per $1,000 or risk (or in the case of a UL policy- per $1,000 of the NAAR) This is one of two ways of spoiling the risk of death to the NAAR. YRT is one year term insurance that renews @ the end of every policy year. The annual premium for a specific year is based on the Life Insured’s risk of death for that year. For UL insurance based on YRT- the cost per $1,000 @ risk usually increases each year because the risk of death increases with age |
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Level Cost of Insurance (LCOI) |
The 2nd mortality costing option is based on concept of LCOI. *LCOI refers to the premiums required by a basic T-100 contact (i.e., no CSV and no non-forfeiture benefits). T-100 premiums are guaranteed to renewing level because amount at risk (death benefit) remains constant For a UL policy based on LCOI, the cost per $1,000 generally remains constant over the duration of the policy |
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Choosing between YRT and LCOI costing |
YRT- the COI is lower than COI for LCOI for first 25 years or so. Lower deductions under YRT costing during early years of policy means YRT has best potential for growth of investment account at the beginning but YRT deductions can be very high in later years and erode the policy’s CV unless they are offset by high investment returns in later years. LCOI - mortality cost deductions are greater during early years so less $$ in the investment account- which could result in lower account values later on. However later in life mortality deductions will be lower than under YRT - and will help preserve the policy’s CV. YRT: good for client looking for greater short-term policy fund values LCOI: good for client looking for longer-term policy values Some policies allow switch from YRT to LCOI costing after policy is issued - but rates will be based on age at time of switch. Typically not permitted to switch from LCOI to YRT after policy is issued.
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Guaranteed vs Adjustable Mortality Deductions |
Open ended or Restricted increases |
