Surrender Cost and Payment Cost of Life

[RonRoberts]

I received a phone call today from a friend of my family's requesting to talk to me about life insurance. One question that he asked me was the surrender cost and the net payment cost of the particular whole life policy. Well, I had no idea but let him know that I would be able to discuss this with him next week.

So, after doing some research, I understand the two indexes but how are they calculated? Also, are these potentially selling features? Meaning, ABC's wl is this, and DEF's is that, which tells me one is better then the other.

Thanks,

Ron

 

[Larry Tew]

If you google them, you can find out how they're calculated. In a nutshell, the net-cost index deals wich how much you have to pay for a dollar's woth of cash value in 10 or 20 years, and the net payment index says the same thing regarding death benefit.

I haven't used the indexes in a selling situation in many years. There are better ways to compare one illustration to another in my opinion. An obvious limitation is that the indexes only represent a "buy and hold" scenario. We know in real life people access their cash values from time to time and they either repay the loan, pay the interest, or do nothing. The indexes do not address this.

 

[BNTRS]

Wouldn't make it a selling point. Maybe a minor one if I needed one more thing, but not a major one. Keep in mind that a lot of these are projected and based on the current dividend being the same amount for all years (not likely to happen...in fact never has).

Larry's point is very good concerning some of the differences. For example, Northwestern Mutual loves to talk about how much cash their policies grow and as such show excellent net cost surrenders.

but...

Touch the money and you have a very different story. There are plenty of companies that will show a higher cost surrender index (lower is better), but will be able to distribute higher amounts of cash through loans because they have better loan provisions.