Lie Policy Design Basics
To look at lie insurance along the lines o “ecient rontier”analysis, in which diverse assets with dierent correlations areused in portolios to produce expected returns with lower volatility, we can ocus on our characteristics unique tolie insurance:
1. Price
(premium outlay)
2. Cost
(net premium outlay and resulting cash value)
3.
Death beneft
(potential or natural increases in ultimatedeath benet through inclusion o dividends/cash value or policy account value accumulations)
4. Risk
(to the policyholder, associated with insurancecompany investments used to support the policy reserves) Just as diversication o investments is a wise practice, italso holds true that no one style o insurance is best or allcircumstances, or client preerences. Most permanent insurancepolicy designs can be grouped into one o our categories. Let’sexamine these policy types, applying the above characteristics:
WholeLieUniversalLieNo LapseGuaran-teeUniversalLieMinimalFundingVariableULPrice
HighestLowest2ndLowest2ndHighest
Cost
BestHighest2ndHighest2ndBest
DeathBeneftIncreasePotential
ExcellentNoneSomeGood
Risk
Very LowLowestLowHigh
* Analysis based on policies or a male, non-smoker, best class, to Lie Expectancy.
Quantiying Categories o Lie Insurance Based on Risk
To select the right combination o policies or a particular individual, the starting point is determining a product’s potentialrisk. Assuming that a company is nancially strong, a Risk Indexo zero could be assigned to a No-Lapse Guarantee policy.At the other extreme, or a Variable Universal Lie productentirely using an S&P500
TM
Index sub-account, a Risk Index o 15 is assigned, as the standard deviation (measurement o risk)applied to this type o und is typically 15%. Whole Lie insurance is assigned a Risk Index o 1.8, as WholeLie has no downside investment risk, but has a possible risk associated with the annual declaration and level o dividendsallocated to the policy.
Live for today and prepare for tomorrow
Now more than ever, lie insuranceought to be a primary asset o choice or people who want to buildan ecient nancial portolio, due toits growth and security over a long term horizon. Because o the many variations o product types andfexibility in design, lie insurance canbe evaluated along the principles o Modern Portolio Theory – maximizing returns or a givenamount o risk through diversicationo investments.
The Living Balance Sheet
®
, a web-based tool that gives individuals and businesses the inormation they needto view current nancial situations and build ecient strategies or the uture.The Living Balance Sheet
®
displays the nancial holdings identied by the client based on inormation andvaluations provided directly by the client or by electronic eeds rom the client’s nancial institutions.Valuations provided by electronic eeds refect the most current inormation provided by nancial institutionsas o the date and time noted, but can refect valuations rom an earlier date and time.The Living Balance Sheet
®
and logo are registered trademarks o The Guardian Lie Insurance Company o America, New York, NY. Patent pending.
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