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PETER
KATT, CFP, LIC
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TELEPHONE:
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Insurance
Columnist and Contributing Editor:
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(269)
372-3497
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Journal
of Financial Planning
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TELECOPIER:
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AAII
Journal
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(269)
372-4681
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Fee-Only Life Insurance Advisors
January 24, 2004
Policy Information
| Insureds | Fred Client and Ethel Client (aka Fred and Ethel Client) |
| Owner | Irrevocable Trust for Fred & Ethel Client, u/d/a - 7/29/93, ABC Bank Trustee |
| Beneficiary | Irrevocable Trust for Fred & Ethel Client, u/d/a - 7/29/93, ABC Bank Trustee |
| Insurance Company | Acme Mutual Life |
| Insureds' Issue Ages | Fred Client - 76, Ethel Client - 75 |
| Policy Number | 1234567890 |
| Underwriting Class | Fred Client - Standard; Ethel Client - Ultra Preferred |
| Policy Date | August 1, 2002 |
| Policy Type and Brand Name | Universal life - Survivorship Universal Life |
| Death Benefit | $3,000,000 - level (defined benefit design) |
| Current Target Premium | $46,000 paid every year |
| Adjusted Target Premium | $18,101 - (see report) |
| Account Value | $677,106 |
| Cash Value | $555,000 |
| Surrender Charges | $121,581 (However, we calculate that the cash value is the asset share making the account value a false concept to hide the amount of first year acquisition expenses that were around #110,000) |
| Policy Loan | None |
| Cost Basis | $648,332 |
| Lapse-Supported Pricing | No |
| Market or Static-Pricing | Market-pricing |
| Cash Value Needed at Maturity | $1 - as long as this policy is in force at the end of the 25th year the $3,000,000 death benefit continues until the second death. |
| Intended Policy Design | Maximum level death benefit with premium management, what we refer to as "defined-benefit design." Because this policy is market-priced its premiums must be managed and adjusted as needed. |
| Current Interest Crediting | 5.45% (we interpret this to require an investment yield of about 6.85% to support a 5.45% crediting rate) |
| Estimated Mortality | 53% of 1975-80 Mortality Table (w/ adjustments) |
| Financial Strength Ratings and Rank | A.M. Best - A++(1); Standard & Poor's AAA (1); Moody's - Aa1 (2); Fitch - AAA (1); Weiss Research - A (2) |
| Pricing Evaluation | We use an asset share pricing model developed by Katt & Company. This pricing model is very useful in interpreting the pricing depicted in in-force illustrations. However, we do not claim our results are completely accurate and can only be described as our best interpretation of a company's pricing because insurance companies will not disclose the kind of information that would allow us to have greater confidence in the results. The 5.45% current interest crediting is above the average for universal life policies. A mortality of 53% is excellent. |
| General Comments | This policy's crediting rate is likely to fall. The target premium set up by ABC Bank (Trustee and seller of policy) is based on generating a $3,000,000 cash value in the 25th year. This isn't necessary and allows the target premium to be much lower. |