Methods of Evaluating Life Insurance

Bohannon, David
April 1996
Journal of Financial Planning;Apr96, Vol. 9 Issue 2, p20
Academic Journal
This article focuses on the relative attractiveness of returns being offered by different insurance policies with a special mention of ways to evaluate such policies. The concern of many financial planners regarding life insurance is the financial analysis of investment alternatives--in particular, the quantitative assessment of the return to insureds for the premium invested. This quantitative analysis must be performed, but should be combined with other pertinent factors, including the assumptions underlying the proposal itself. There are three universal variables in cash-value life insurance: interact rates (investments), expenses and mortality charges. Some basic knowledge of the effect these variables have on illustrations sheds light on discrepancies and provides an excellent beginning to quantitative analysis of policies. Assumptions in interest rates (dividends), mortality charges or expenses in life insurance illustrations need not be based on any actual expectation or reality. When all three components have been artificially manufactured, the results, although actuarially feasible, are financially impossible.


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