Full Disclosure Whole Life Report

In the illustrated values chart as well as the 10- and 20-year historical excerpt, the internal rate of return method is used. The IRR is applied to current cash values and death benefits measured at 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 a 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 index is better, but be aware of how much premium each policy commands annually.

In real sales, policies are usually 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.

This year's 20-year historical analysis comes at a time when companies currently are implementing the latest 2001 mortality tables. Twenty years ago companies were also implementing new tables. In 1986, companies began to introduce policies using the 1980 CSO mortality table for calculations. During a transition period ending in 1987, many companies sold both 1958 and 1980 CSO-based products. It is interesting to see how adopting a new table changes policies' performance. Policy performance and the interest-adjusted net cost and payment indices included in the chart may be affected, and some companies in this study show both products. In the 20-year chart, we have indicated with asterisks next to the policy name which pricing method was used in each policy when it was issued on Dec. 31, 1986.