We have developed a unique methodology for the proper analysis of a proposed or existing life insurance policy accounting for important factors relating to performance. Perhaps the most interesting finding concerning the Yield Method is that the choice of term insurance rates affects not only the yields, the choice of term insurance rates can also affect policy ranking among non-identical premium policies. The marginal annual yield can be especially important in a policy replacement or surrender decision. In fact, analysis that do not consider the marginal annual yield can be erroneous. A large sample of cash value policies is examined.
Substantial variation exists within and across policy type.
Life Insurance Illustrations Sales of cash value life insurance often are based on computer-generated illustrations which highlight projected policy values for future years of the contract. The study in chapter 5 examines the reliability of cash value insurance policy illustrations in the analysis and selection of a life insurance policy. The results of this study suggest that the magnitude of the difference in projected versus actual policy yields appears to be greater than what would be expected solely from the decrease in interest rates. In addition, the rank order of UL policies based on illustrated surrender values was significantly different from the rank order of UL policies based on actual surrender values. The results also provide motivation for financial planners, insurer managers, raters and regulators to examine the new banking- type risks faced by insurers.