Full Disclosures Whole Life Report

Illustrated values are based on a Male Age 40 paying on a $250,000 policy. The class specified is best nonsmoker as long as the class represents at least 15% of the contract issued of each policy. Illustrations are divided between all base (100% whole life coverage) and policies blended with 50% term. Blending policies in this fashion allows a lower premium outlay while retaining a responsible level of all base coverage to cushion adverse changes in dividend scales. There is more risk to the level death benefit and premiums that are guaranteed in an all base policy, but the upside to the consumer–and the seller–is a more affordable premium.

The internal rate of return method is applied to both prospective and historical performance. The IRR is applied to current cash values and death benefits measured at a duration of 30 years. The IRR of the death benefit in the early years of a policy is very high because of the few premiums paid. The IRR of cash values rises over time, as the IRR for the death benefit falls. A careful analysis of the IRR measurements indicates which policies are designed (in an illustration at least) to build current cash values, guaranteed cash values, or death benefits. It is good way to measure policies that have dissimilar annual premiums, but its downside is that it favors policies with large premiums due to economies of scale.

We look at whole life historical performance two ways. The first basis shows policy dividends measured as cash out of the policy. Here the interest adjusted payment and cost indices are applied on the actual performance of the policy and on the cash values illustrated 10 and 20 years ago. The indices show how plans with dissimilar premiums actually performed vs. how they were initially illustrated. A lower number is better, but beware of how much premium each policy commands annually.

In real sales, policies usually are not illustrated with cash dividends being paid to the policyholder, but with dividends going to Paid-Up Additions, little slices of whole life that in turn develop their own dividends thus enhancing policyholder value. Here again we can use IRR measurements on these values. Compiling these historical figures is a time-consuming exercise for the companies in this section, and we are grateful for their efforts.