Understanding Policy Premiums and Benefits in Insurance
Policies in insurance involve premiums coming in along with investment income, while benefits like death and surrender are paid out. Expenses, taxes, and other factors impact the cash flow and accumulated earnings. Assumptions play a crucial role in pricing specific products, and various factors affect fund values in policies like UL. Calculations involve premium and interest crediting against expenses like cost of insurance and withdrawals. Comparing asset shares to cash surrender values is crucial for decision-making.
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Group of Policies Premiums come IN Investment Income comes IN Death and Surrender benefits get paid OUT Expenses get paid OUT Taxes get paid OUT Ignore reserves, not a cash item
Year Premium Investment Benefits Other Expenses Taxes Cash Flow Commissions Accumulated Cash Flow Earnings 1 $2,840 (95) 82 2,414 2,106 (577) (1,280) (1,280) 2 $2,725 69 111 136 47 (315) 2,815 1,535
Assumptions: Earned rate on investments Lapse and mortality rates Expenses Tax rates Any other assumptions important in pricing your particular product
Factors impacting fund value on a UL policy Cost of Insurance rates expense charges crediting rates surrender charges.
Calculating fund value: Premium IN, Interest Crediting IN, Cost of Insurance OUT, Expense Charges OUT, Withdrawals OUT
Compare Projected asset shares, to Projected cash surrender values
ONE HOUR LATER
Nonguaranteed elements Cost of insurance rates Expense charges Crediting rates
ONE HOUR LATER
Illustrations: Basic Supplemental In Force
References: Code of Professional Conduct Qualification Standards NAIC Model Illustration Regulation ASOP 24, Compliance with the NAIC Life Insurance Illustration Model Regulation . ASOP 12, Risk Classification ASOP 23, Data Quality ASOP 41, Actuarial Communications ASOP 56, Modeling
Nonguaranteed elements Cost of insurance rates Expense charges Crediting rates A scale is a set of nonguaranteed elements
Disciplined Current Scale (DCS) keeps illustration actuary honest Nonguaranteed elements set in a specific way Assumptions: Earned rate on investments Lapse and mortality rates Expenses Tax rates
Disciplined Current Scale (DCS) more Use assumptions to project asset shares. Use assumptions and DCS nonguaranteed elements to project cash surrender values. If asset shares > cash surrender values at durations after 15 you pass the test. It is duration 20 and after for some joint life policies.
Currently Payable Scale How nonguaranteed elements currently set Illustrated Scale How nonguaranteed elements set in illustrations. Cannot exceed the lesser of the currently payable scale or the DCS. Simplest if three scales the same.
