Variable Versus Whole Life in Defined-Contribution Designs

November 2003
Journal of Financial Planning;Nov2003, Vol. 16 Issue 11, p34
Academic Journal
The article compares variable versus whole life in defined-contribution designs. There are simulations illustrating the difference between volatile variable life equity returns and far more tranquil whole life returns over a lifetime. Arithmetic average is the average when totaling the year-to-year results and divide it by the number of years. The timing of gains and losses can have a tremendous effect on the actual performance, which is by far the most important cause. Although less likely, the actual result can be better that the arithmetic average, but no one should be disappointed with the outcome. Variable life illustrations create the illustrations that must show a constant yield. The volatility of equity returns can produce results that may appear to be unexpected but are actually natural, due to the unpredictability of equity gains and losses. It is important for older clients whose time horizons may make variable life far more risky because they may not have the time to earn back their investment mistakes. Nearly every article about life insurance in the mainstream press has the obligatory reminder for readers to check the financial strength ratings of companies before buying life insurance from them.


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