Life insurance policy evaluation method
US007698158B1
(12) Ulllted States Patent
(10) Patent N0.:
Flagg (54)
US 7,698,158 B1
(45) Date of Patent:
LIFE INSURANCE POLICY EVALUATION
JP
02001088468 A
METHOD
(75) InVentOrZ
Apr. 13, 2010 4/2001
OTHER PUBLICATIONS a amp.FL a B ar 61) . F1gg.T
Keatin g , Peter, “Your Money or Your Life < insurance > ,” Ap r. 1999,
Money, vol. 28, No. 4, pp. 156-160.*
(73)
Assignee: TheInsuranceAdvisor Technologies,
P~ Booth et a1» Modern Actuarial Theory and Practice, PP 306-351,
Inc” Tampa’ FL (Us)
Chapman & Hall/CRC. Kenneth Black, Jr. and Harold D. Skipper, Jr., Life Insurance, Twelfth
( * ) Notice:
Subject to any disclaimer, the term of this
patent is extended or adjusted under 35 U S C 154(1)) b 1739 da S ' '
'
y
y '
EdltloItll’lclllaplier 10’ pd?‘ 2381341‘ ki
_f
lh
Kenne .13 ac ’ Jr‘ 8n. Ham D‘ S pper’ Jr" L1 6 & Heat Insur ance, Thirteenth Edition, pp. 279-295. I
Randy Barkacs, Cost Disclosure Versus Concept Disclosure: A Per
sonal Perspective, Journal of the American Society of CLU & ChFC, _
(22)
Joseph W. MacZuga, Crossover with Low Loads, WWW.Financial
Flled:
Jun- 51 2002
Planning.com, Financial Planning, May 2001.
Related US. Application Data
* Cited by examiner
(63) Continuation-in-part of application No. 09/694,899,
P1’Wary Examilferic- Luke Gilligan
?led on Oct. 24, 2000, noW Pat. NO. 6,456,979.
AsslswntExammeriRachel L Porter
(74) Attorney, Agent, or FirmiCourtney M. Dunn; Smith & Hopen P.A.
(51) Int. Cl.
G06Q 40/00
(2006.01)
(52)
us. Cl. ....................................... .. 705/4, 705/36 R
(57)
(58)
Field of Classi?cation Search ................... .. 77857345, S 1, _ ?l f 1 h h,
A method of evaluating a permanent life insurance policy including the steps of accessing a policy illustration, estab
ee app lcanon
(56)
e or Comp ete Seam
lstory'
ABSTRACT
lishing an effective life span of the policy illustration, identi
References Cited
fying a ?rst amount attributed to death bene?t claims, iden
tifying a second amount attributed to premium loads, U-S~ PATENT DOCUMENTS
identifying a third amount attributed to policy expenses, cal
4 837 693 A
6/1989 Schotz
culating a sum of the ?rst, second and third amounts for a
535233942 A
6/1996 Tyler et a1‘
plurality of policy years, averaging the sum for each year
5,6 5 5,085 A 5,926,792 A *
8/ 1997 Ryan et a1, 7/1999 Koppes et al. ..
5,956,691 A
9/1999
705/4
throughout the effective life span, calculating a cash value of the policy illustration for the plurality of policy years, iden
Powers - - - - - - - - - - -
- - - -- 705/4
tifying a projected investment earnings forecast in the policy
6,009,402 A * 12/1999 Whltworth 6,304,859 B1 : 10/2001 Ryan et al' ~~~~ ~~
705/4 705/38
illustration, normalizing the projected investment earnings forecast, adding the project investment earnings to the cash
*
FOREIGN PATENT Roscoe DOCUMENTS et . . . . . . . . . . . . . . . . ..
JP
359017656 A
Value’ illustration and recalculating for the plurality the of Current policyCash years. Value of the
1/1984
14 Claims, 16 Drawing Sheets 120
Access a First Policy Illustration
‘
130
Identify First Amount Attributed to Death Bene?t Claims
140
Identify Second Amount Attributed to
Premium Loads
150
Identify Third Amount Attributed to
Policy Expenses
Calculate Sum of l
2 First, Second and Third Amounts
Generate Report of ‘
Sum in COmparison to Other Policies
‘
US. Patent
Fi
Apr. 13, 2010
I 1
Sheet 1 0f 16
US 7,698,158 B1
Certi?ed public accountants, attorneys and other advisers have no
independent source of
permanent insurance pricing and value information,
lnsu rance
Carrier A
5‘
Permanent Insurance COls
Guarded as Proprietary by
Prior Art
Insurance Carriers
US. Patent
Apr. 13, 2010
Sheet 2 0f 16
US 7,698,158 B1
Constant for l
evaluation
purpos?s
Death bene?ts paid out. 80
100
I "
Policy Expenses
Carrier & servicing organization expenses for
policy design, underwriting and administration.
1 10 1
Investment
US. Patent
Apr. 13, 2010
Sheet 3 0f 16
US 7,698,158 B1
Fig. 3
{>—
Cost of insurance, premium loads, and policy expenses negatively affect the cash value ofthc policy,
Investment income must be sufficient to pay for expenses of policy While continuing to accumulate towards
endowment/maturity date.
'/ GOAL: Establish and -
C t f.
.
l
d
maintain high cash
05 o 1nsurance,prennum 0a s,
value ofpohcy
and policy expenses are low
{l
enough in Policy B to permit the cash value to steadily increase.
L
B
I
Cost of insurance, premium loads, and policy expenses
overburdened Policy A resulting Policy A
Cash I Value
IO
0 IF Time
3
in a zero cash value in year 20.
20
3O
4O
——>
US. Patent
Apr. 13, 2010
Fig. 4
Sheet 4 0f 16
US 7,698,158 B1
120
Access Illustration 21 First Policy
130
Identify Attributed FirsttoAmount Death 1
Bene?t Claims I40
Amount Premium Identify Attributed Second Loads to
150
Amount Policy Identify Attributed Expenses Third to
160R L Z First, Calculate ThirdSecond Amounts Sumand of
Generate Report of g Sum in Comparison to Other Policies
US. Patent
Apr. 13, 2010
Sheet 5 0f 16
US 7,698,158 B1
Access a First Policy
Illustration
Identify First Amount Attributed to Death Bene?t Claims
165
Amount Premium Identify Attributed Second Loads to
Repeat Calculations Over Life of Policy 1
Identify Third Amount PolicyAttributed Expenses to
Sum Generate to Other in Comparison Report Policiesof
E First, Calculate ThirdSecond Amounts Sumand of
US. Patent
Apr. 13, 2010
Sheet 6 0f 16
US 7,698,158 B1
120
Access Illustration a First Policy ’
Identify Attributed Bene?t First Claims toAmount Death
Identify Second
165
Amount Attributed to
Premlum Loads
Repeat Calculations Over Lif? ofpolicy
Amount Policy Identify Attributed Expenses Third to ‘ 175
Generate Cash Inception Value Report from to of
Z First, Calculate ThirdSecond Amounts Sumand of
165
of Current Subtract PolicyCash According SumValue from Investment t0 Illustrated Earnings
Maturity.
US. Patent
Apr. 13, 2010
US 7,698,158 B1
Sheet 7 0f 16
Fig. 7 120
Access Illustration 21 First Policy
Identify First Amount Attributed to Death
Bene?t Claims
Identify Second
165
Amount Attributed to i Premium Loads
5
Repeat Calculations Over Life of Policy
Identify Third Amount Attributed to
Policy Expenses
176
Generate Report of Inception Cash Value to Maturity. from
Z First, Calculate ThirdSecond Amounts Sumand of
166 Subtract Sum from
l
Current Cash Value
'
of Policy According ; to Normalized 1
Investment Earnings
US. Patent
Apr. 13, 2010
Sheet 8 0f 16
US 7,698,158 B1
Fig.8 190
Comparable Resolve Value Benchmark for Policies 120 Access a First Policy
Illustration 130
Repeat Steps 120 through 165 for
Comparable Policies.
Identify First Amount ‘
Attributed to Death Bene?t Claims
Identify Second
165
Amount Attributed to
Premium Loads
Identify Third Amount Attributed to
Policy Expenses
Z First, Calculate Second Sumand of 3 Third Amounts
l Repeat Calculations LOver Life of Policy
US. Patent
Apr. 13, 2010
Sheet 9 0f 16
Policy D J
US 7,698,158 B1
PolicyE J Least amount paid out in death bene?t claims
COIs
(COIs). Highest proportion of premiums goes to
Policy Charges
servicc—expenses.
Premium Loads \ All three policies have substantially similar Sums.
Fig. 10 Aggregate an array of
comparable policies with substantially similar Sums. 0
\’\
\
Evaluating the array according to the relative proportion of
CO1 Charges.
I
'
proportion Correlating of CO1 theCharges relative to a Service Index Value.
US. Patent
Apr. 13, 2010
Sheet 11 0f 16
US 7,698,158 B1
Fig. 12 Cost of Insurance (COl) Analysls Table %‘ = Percem of Industry standard table shown m Column (1)
(1)
(2) _
Policy Yr 8Age BoY) 1 2 3
50 51 52
0.00170 0.00242 0.00304
98 99 100
0.30565 0.32292 0.34061
‘
(4)
7
Male Age Naarest Rate
;
Gender Adj'd Benchmark %* Rate #N/A #N/A #N/A
Nonsmoker
(5) _
Tobacco Use Adj'd Benchmark %" Rate
0 00170 0 00242 0 00304
\
v
49 50 51
(3)
15-00 sau __
62 6% 52 6% 62 6%
Pro?le Adj'd Benchmark %' Rate
0 00106 000151 0 00190
(5)
Healih/Lifestyle
100 0% 100 0% 100 0%
0 00106 0 00151 0 00190
1 I
(7)
Pric|ng»Me1hod Adiustments
Retall Benchmark %’ Rate
lnsmutional Benchmark %' Rate
76 0% 76 0% 76 0%
64 0% 64 0% 64 0%
0.00081 0 00115 0 00145
0 00068 0 00097 0 00122
:
1
V
#N/A #N/A #N/A
7'
0 30565 0 32292 0 34061
62 6% 62 6% 62.6%
v
0 197134 0.20215 0.21322
100 0% 100 0% 100 0%
0 19134 0 20215 0 21322
V
76 0% 76.07% 75 0%
v
0 14542 0.15353 0 16205
64 0% 64 0% 64.0%
0 12246 0 12937 0 13646
Fig. 13 Cost of Insurance (COl) Analysls Table %‘ = Percent of Industry standard table shown in Column (1)
(1)
(2)
(3)
(4)
75-50 sau R_
__
(5)
Nonsmoker
_
(5)
HeallhlLlfestyle
E
(7)
PncmQ-Memod Adlustmems
Male Age
Gender Adj'd
Tobacco Use
Pro?le Adj'd
Retail
lnshtuhonal
Policy Yr &
Nearest
Benchmark
Adj'd Benchmark ‘
Benchmark
Benchmark
Benchmark
Age BoY)
Rate
1 2 3
50 51 52
0.00170 0 00242 0 00304
%' #N/A #NIA #NIA
Rate 0.00170 0.00242 0.00304
%' 62 6% 62.6% 62 6%
Rate 0 00106 0 00151 0.00190
%"
W
Rate
100 0% 100 0% 100 0%
0.00106 0 00151 0 00190
%'
Rale
76 0% 76 0% 76 0%
I
0.00081 0 00115 0 00145
%' 64 0% 64.0% 64.0%
.
Rate 0.00068 0 00097 0.00122 1
W "49 ,
98
0.30565 .
#NIA
l0.30565
62 6%
.0 19134
100 0%
;0.19134
76 0%
10 14542
64 0%
0 12246
50 51
99 100
0 32292 0 34061
#NIA #NIA
0.32292 0.34061
62.6% 62 6%
0 20215 0 21322
100 0% 100 0%
0 20215 0 21322
76 0% 76 0%
0 15363 0 16205
64 0% 64 0%
0.12937 0 13646
US. Patent
Apr. 13, 2010
Sheet 12 0f 16
US 7,698,158 B1
Fig. 14 Cost of Insurance (COI) Analysis Table ' = Percem of industry standard table shown |n Column (1)
(1) i
(2)
7
(3)
75—80 S&U
Policy Yr & i V
Age BoY) 1 2 3
50 51 52
(4)
i
i i
(5)
HeallhlLifeslyle
‘ 1
Gender Adj'd
Tobacco Use
Profile Adj'd
Retail
Benchmark
Adj'd Benchmark
Benchmark
Benchmark
Rate
"/u’
0 00170 0 00242 0 00304
Rate
#N/A #N/A #N/A
%‘
000170 0 00242 0.00304
Rate
62.8% 62.6% 62.6%
%"
0.00106" 0.00151 0.00190
.
Rate
100 0% 100 0% 100 0%
0 00106 0 00151 0 00190
%'
0 30565 0 32292 0 34061
#N/A #N/A #N/A
i
0 30565 0 32292 034061
52.6% 82.6% 62.6%
76 0% 76 0% 76 0%
1
0.19134 0.20215 0.21322
100 0% 100 0% 100 0%
019134 0 20215 0 21322
institutional Benchmark
Rate
%'
0 00081 0 00115 0 00145
i
v
(7)
Pr|cing»Melr od Adjuslmems
Nearest
e 98 99 100
__
Male Age
‘v 49 50 51
(5)
Nonsmoker
04 0% 64 0% 64 0%
Rale 0 00068 0.00097 0 00122
.
r
+
v
76 0% 76 0% 76 0%
0.14542 0 15363 0 16205
64 0% 64 0% 64 0%
0 12246 0 12937 0 13646
Fig. 15 Cost of Insurance (COI) Analysis Table %* = Percentof industry standard lable shown In Column (1)
(1)
(2) 75-80 S&U
(3)
(4)
___
_
(5)
Nonsmoker
Male Age
Gender Adj'd
Tobacco Use
Policy Yr 81
Nearest
Benchmark
Adj'd Benchmark
Age BoY)
Rate
1 2 3
50 51 52
0 00170 0 00242 0 00304
9e 99 100
0 30565 D 32292 0 34061
#NIA “MIA "MIA
i
0
49 50 51
%'
Rale 0 00170 0 00242 0 00304
%" 626% 62 6% 02 6%
;
v
V
#NIA #N/A #N/A
0 30565 0 32292 0 34061
Rate 000106 0 00151 0 00190
‘ V
“
n
0 19134 0 20215 0.21322
"
rk
%‘ 100.0% 100.0% 100.0%
Rate 0.00105 0.00151 0.00190
0.19134 0.20215 0.21322
(7)
Retail
lnslilutiunal
Benchmark
Benchmark
%‘
Rate
76 0% 76.0% 76.0%
l 100.0% 100.0% 100.0%
l ‘
PricmgMetr 0d Adjustments
Profile Adj'd 7
V
62 6% 62.6% 62 6%
(5)
Health/Lifestyle
0 00081 0 00115 0 00145
%" 64 0% 54 0% 64 0%
i
0 14542 0 15363 0 16205
0 00068 0 00097 0 00122
l
v
160% 76 0% 76 0%
Rate
V
04 0% 64.0% 64 0%
0 1224s 0 12937 013646
US. Patent
Apr. 13, 2010
Sheet 13 0f 16
US 7,698,158 B1
Fig. 16 Cost of Insurance (COI) Analysls Table %' = Percent oflndustry standard table shown in Column (1)
(1)
(2)
(3)
(4)
75-80 S&U _
Male Age Nearest
Policy Yr 8. Age BoY 1 2 3
%'
0 00170 0.00242 0 00304
1
‘
‘V
v
49 {0 51
Gender Adj‘d Benchmark
Rate
50 51 52
98 e9 100
*
#N/A #NIA #NIA
Rate
%‘
#N/A #N/A #N/A
__
100 0% 100.0% 100 0%
"
0 30565 0 32292 0 34061
62 6% 02 0% 62 6%
100 0% 100.01/u 100 0%
(7)
Retail Benchmark
Rate
"/0’
000106 0 00151 000190
Rate
76.0% 76.0% 76.0%
v
0 19134 0 20215 0 21322
l l
Pricin?ethcd Agjustmems
Prollle Adj‘d Benchmark %‘
0 00106 0 00151 0 00190
(5)
HeallhlLlfestyle
Rate
62 6% 62 6% 62 6%
1
0 30565 0 32292 0 34061
(5)
Nonsmoker
Tobacco Use Adj'd Benchmark
0 00170 0 00242 0 00304
7
0 10134 0 20215
76.0% 10.0%
0 21322
76.0%
lnslllulronal Benchmark ‘
%‘
0.00081 0.00115 0.00145
64 0% 64 0% 64 0%
1
1
i
v
0.14542 0.15303 0.16205
54 0% 54 0% 64 0%
Fig. 17 Cost of Insurance (COI) Analysls Table ' = Percentof Industry standard table shown in Column (1)
(1)
(2)
(3)
75-80 S&U _
Policy Yr 81 Age EloYl 5 " '1 2 3
50 51 52
0 00110 0.00242 0 00304
98 99 100
0.30565 0 32292 0 34061
W . 49 50 51
Male Age Nearest Rate
(4) *7
Gender Adj‘d Benchmark %' Rate #N/A #N/A #N/A
.
0 00110 0 00242 0 00304
Nonsmoker
Tobacco Use Adj‘d Bcnchrngrk %" Rate 02 0% 62 6% 62 0%
. #N/A #N/A #NIA
0.30565 0.32292 0 34061
0 00100 0 00151 0.00100
(5) i7’
HealthlLlfestyle
Pro?le Adj‘d Benchmark %' Rate 100 0% 100 0% 100 0%
v 62 6% 62 6% 62 6%
0 19134 0 20215 0 21322
0 0010s 0.00151 0 00190
(6) Pricing-Memo
Retarl Be chmark %' Rate 10 01/. 76 0% 70 0%
. 100 0% 100 0% 100 0%
0 19134 0 20215 0 21322
0 00081 0 00115 0 00145
l
(7)
AE|uslments
lnslitullonal Benchmark "/0" Rate 04.0% 64.0% 7 7 05.0%
l 76 0% 76 0% 76 0%
0.14542 0 15363 016205
Rate 0 00068 0 00097 70700122
0.00000 0.0009! 7 0.00122
. 84.0% 64.0% 64.0%
0.12246 0.12937 0.13646
0 12246 0 12037
0 13646
US. Patent
Apr. 13, 2010
Sheet 14 0f 16
US 7,698,158 B1
Fig. 18 Policy Name:
Sample VUL (Experience-Rated)
Abbreviated Name“;
V
‘I
Policy Type:
Sample VUL
l
VUL (VUL, UL or WL)
Insured/Applicant Sex (M/F):
' MHMWlVl "(ii/1'5?
Insured/Applicant Age/Age Group:
I I
50
Insured/Applicant Health Pro?le:
Preferred (Standard, Preferred, or Preferred+)wm
Smoker Status:
NS (NS or SM)
Face Amount:
I
1,000,000
Death Bene?t Option
Level
Endowment/Maturity Age:
‘
Wm“
Pricing Category: MM
M
100
,
Retail}
lnslitutional
W
'
Institutional
M
Experience-Rated
1
‘A
5
Funding Intent:
WWW'WWM
xW
‘
Wm
Min Fund
W
Max Fund Single PQa'y ‘‘‘‘ “M
Min
WWW
.
Hné?ww
:
1
Planned Annual Premium (for CV Comparison)
Té?ét'?b?dih‘d P‘éilbdmn
‘Mm
“may
M
,l
'
M
_,__
Till-E0" “mm _ M
V‘
1
m ''''' “W
10,000 10 Yrs
“
" " “WNWWTMMFWMW WMWTGWWWP"
Target Net Average Policy Earnings Rate:
W'WWW
M MM,
55
Target Premium (for Surrender Charge 0555*“ w
Surrender Chargeljuration
.
MAW‘
10.00%
M
"nu-“W
WM '' '
' PM?“
“
US. Patent
Apr. 13, 2010
Sheet 15 0f 16
US 7,698,158 B1
1) Locate the [OW
corresponding to
the. origmo‘ pohcy Issue
Pohcy Year
age 50 1n the
Age
6
7 ‘
left-most age
7
1;
\.
I\
..
49
l ‘\ X50
1
2 locate the column
\ corrospondmg to the 8th
888332 '
38852 “ '
888132 '
33825’
0.00540
0 00601
0.00337
000.410
0 00575
0 00045
0 00310
*1
9
.
0 00379
51
0 00364
0 00443
“00526
0.00612
000700
52
0.00392
0.00465
Q ‘557
0.00659
0.00769
53
0 00424
0 00510
0\
0 00736
0 00862
\
‘W 0‘ 18 P40 “W the top row/heading of the tome
3) look up the rate at the lntersectlon of the Age 50 row and the 8th Year column.
F lg ' . 20 1) Locate the
_
row
_
Pohcy Year
corresponding to
A96
Ultimate
25
24
25
0.02016 0.02174 0 02320
0.02199 0.02362 0 02573
0.02404 0 02619 0 02853
Rote
Age
the or'lgmal pollcy issug Q95 50 in the lettimost age column
47 48 49 )
I
"i, ,'
20102803
0.03063 0 03357 0 03661
03,110 5
51
0 02755
0.03055
0.05592
52
0 02981
0 03292
0 03836
53
0.03232
0.03792
0.04394
54 55 56
0 03704 0 04248 0 04866
0 04321 0 0492l 0 05515
0 05029 0 05635 0 06355
57
0 05455
0 06222
0 07138
TI‘
.
’
"
"
72 73 74 75
‘
\
g
/
2) Follow the original issue age 50 row to the far right column labeled "Ultlmate Rate", then follow that column down to the lntersecllon of that column, to the age 80 row
US. Patent
Apr. 13, 2010
Sheet 16 0f 16
US 7,698,158 B1
Fig. 21 Smoker-Nonsmoker 1990-95 Experience by Issue Age Separately for Medical, Paramedical and Nonmedical; Males and Females Cmbined Issues of 1980-94 Studied Between 1990 and 1995 Anniversaries Expected Deaths Based on 1975-80 Basic Tables (Exposures in $1,000,000 Units;
Actual Deaths in $1,000 Units)
41)
(2)
(3)
(4)
(5)
(6)
(7)
(8) Ratio of
Age
Actual Mortality
Actual Mortality
Exposure
Deaths
Deaths
Ratio
Nonsmoker Mortality Ratios
0~19 $208,763 20-29 $651,272 30-39 $1,379,160 40-49 $754,661 50-59 $258,461 60 & $99,069
$71,835 $284,100 $777,645 $988,283 $868,216 $924,048
$4,332 $76,261 $269,406 $377,036 $379,014 $291,313
81.0 128.8 117.3 120.1 153.4 181.7
1.11 1.94 2.34 2.17 2.45 2.31
60.9 $481,333 $1,397,365
1376
2.26
at Issue
Ratio Exposure
72.7 66.4 50.1 55.2 62.6 78.8
$8,232 $88,682 $198,505 $127,523 $44,419 $13,969
Smoker
over
Total $3,351,388 $3,914,130
US 7,698,158 B1 1
2
LIFE INSURANCE POLICY EVALUATION METHOD
son shopping”, there is considerable disincentive for consum ers to separate the purchase of life insurance from these value
RELATED APPLICATIONS
added services. In the current distribution environment Where Agents rep resent only a small fraction of the total number of insurance
carriers Whose products could otherWise prove suitable, and
This application is a Continuation-in-Part and claims pri ority to Us. patent application Ser. No. 09/694,899 ?led Oct. 24, 2000 noW U.S. Pat. No. 6,456,979 incorporated herein by
Without any effective means for Agents to compare product pricing on behalf of the consumer, separating the insurance
reference.
purchase from the value added services Would require the consumer to l) engage and pay a fee-for-service Advisor to
repeat the planning already prepared by the Agent, 2) contact multiple other Agents for “price quotes” (i.e. hypothetical
FIELD OF INVENTION
This invention relates to a method for evaluating ?nancial
policy illustrations), and 3) either attempt to compare the
information, and more speci?cally to evaluating permanent life insurance policies for cost and performance criteria.
hypothetical policy illustrations involving literally thousands of computations (as described above/beloW), or engage and pay a another fee-for-service Advisor to do the “comparison
shopping” for them. As a result, because of this high-level of
BACKGROUND OF THE INVENTION
personal Agent involvement, and additional and redundant time, energy, dif?culty and cost preventing consumers from
While permanent life insurance products that differ by virtue of their makeup are distinguished from one another by
20
industry accepted naming conventions, the insurance indus try does not formally label the different pricing methodolo
general consumer that also typically have higher costs asso ciated With the distribution of the product, these products Will
gies of the different types of products priced and targeted for different types of consumers. For instance, there are only 3
basic types of permanent life insurance When grouped by virtue of their makeup: (1) Whole life insurance Which typi cally provides level death bene?t coverage for the Whole of the insured’s life; (2) universal life insurance policies Which are ?exible-premium, adjustable death bene?t, unbundled life contracts; and (3) variable universal life Whose values
doing some level of comparison shopping, these products typically have high(er) loads or high(er) surrender charges. As such, by analogy With other products marketed to the
25
be referred to as “Retail” products.
In addition to the “Retail” products marketed and sold by the existing traditional distribution systems of Agents, there
30
are other forms of “Retail” products marketed directly to the general consumer through alternative distribution channels like the Internet, television, direct mail, or through a variety of
may vary directly With the performance of a set of earmarked
associations to Which the consumer may be a member. These
investments. Life & Health Insurance: 13th Edition. Black, Kenneth, Jr., Skipper, Harold D., Jr. Prentice Hall (2000). It
products are customarily marketed on the basis of offering
should be noted that variable life is an early evolution of the
these reasons, implies the promise of superior value to the
category of variable life insurance policies.
loWer or no loads, or loWer or no surrender charges, and for 35
consumer. For instance, a characteristic representation of one
distinguished products that differ by virtue of the market for
of these “LoW-Load Direct-Retail” products is that they “dra matically reduce product charges and eliminate front-end and
Which they are priced and to Which they are marketed, all
back-end sales loads . . . ” and that these products are
While no such similar formal naming convention exists to
policies can, nonetheless, be categoriZed by the nature of the underlying expenses as to COIs, Premium-Based Charges, Cash-Value-Based Charges, and Fixed-Type Charges, and the
“designed from the investor’s perspective and noW offers a 40
manner in Which these expenses are assembled into the fol
loWing 3 basic groups based on the folloWing 3 different
markets/pricing methodologies: 1) Retail Products/Pricing 2) Institutional Products/ Pricing 3) Experience-Rated Products/ Pricing Retail Products/Pricing The life insurance needs of the general consumer are still
45
life insurance plan that provides a good vehicle to accumulate and transfer Wealth.” Of course, the implication is that by reducing or eliminating certain policy loads, these “No/Low Load” products offer an inherently superior value, and have been developed in direct response to the absence of any means for either the direct consumer or the Agents to easily and
simply compare insurance product pricing. In the absence of complete product pricing information that is vital to making an informed insurance decision, consumers are unable to seek
out, identify and purchase the mo st ef?ciently priced product, 50
and in so doing, create pressure in the market to squeeze out
largely served by the existing distribution system of Agents
the inef?ciently-priced products. As such, the market of cer
and Brokers (herein collectively “Agents”) Who represent a
tain insurance product manufacturers has responded by
particular insurance company or group of companies. This
reducing or eliminating those policy costs that are most vis ible to the general consumer. HoWever, as previously mentioned, the most in?uential
method of distribution typically involves the “bundling” the sale of the life insurance product together With some level of value-added ?nancial planning service related directly or indirectly to the need for life insurance (e. g. like determining
55
policy pricing component are typically the COIs, Which have as much as 5-Times the impact over policy pricing than do the
the amount of life insurance needed though a capital needs
visible, disclosed policy loads and expenses. From the per spective of the insurance company, insurance is simply the
analysis, general retirement planning, overall bene?t plan ning and consulting, income tax planning, business continu
60
ity consulting and ?nancing, general estate planning, estate
transfer of risk of ?nancial loss from an individual Where that risk is unpredictable, to a group of individuals that is su?i
tax ?nancing, etc.). There is often a high-level of personal
ciently large to make that risk both predictable and fundable.
involvement associated With the marketing and sale of a par
COIs are the mechanism by Which life insurers typically “fund” the payment of these death claims. As such, insurance
ticular insurance company’s products by the traditional Agent. Because of this high-level of personal involvement leading up to the purchase of life insurance, and absent any easy and convenient means of doing some level of “compari
65
companies pool policies to make these risks more predictable, and the larger the pool, the more predictable the risk. This pooling, Which has the effect of combining large and small
US 7,698,158 B1 3
4
policies, and loW and high risk segments of the pool, averages the variables that contribute to premium prices. Since differ ent groups of policyholders have different claims experience and expenses pro?les, premiums Will vary depending on the claims experience and expenses for the group being insured. In effect, this averaging cross-subsidiZes smaller transactions and higher-risk segments With excess “pro?ts” from the larger transactions and loWer-risk segments in the pool. In addition, as previously mentioned, certain insurers
gated pool of quali?ed companies and quali?ed individuals. Experience-Rated products are priced for the superior claims experience of professionals, business executives and oWners, and high net Worth individuals. Because this group enjoys healthier lifestyles and better health care, they live longer, and
therefore, experiences loWer mortality rates. Products priced for this market generally have loWer COI charges than prod ucts sold to retail and institutional markets, in similar form or fashion as to the Way GEICO® auto insurance selects loW
“load” the COIs to cover other policy expenses that are not disclosed elseWhere. For instance, some policies marketed as
risk drivers for their pool, and then charges loWer premiums corresponding to the superior claims experience of that pool.
“no/loW-load” policies do not disclose certain policy expenses or loads, even though they must be paid (e.g. State Premium Taxes, Federal Deferred Acquisition Costs (DAC) Taxes, and the cost to distribute the policies [policies do not distribute themselves]). As such, some of these “No/LoW
de?ned as those policies that l) are only available to the quali?ed buyers as determined by either some minimum insurance face amount or premium requirements, or by virtue
Load” products include the same, or in some cases, higher “loads” to cover the costs of distributing the policy directly to the consumer rather than through anAgent, but these loads are not disclosed, but instead are often “hidden” inside the
Experience-rated products Will therefore be collectively
of certain personal or corporate ?nancial suitability require ments, or by virtue of some occupational or lifestyle suitabil
ity requirement and 2) have loWer COIs relative to the bench marks established beloW. 20
There is presently no technology for the comparison of
unpublished “loaded” COI charges. Consequently, because
permanent life insurance products. The only existing technol
these “No/LoW Load” products are marketed to the general consumer and also typically have higher costs associated With the distribution of the product, these products Will also be referred to as “Retail” products, Which Will be collectively de?ned as those policies that l) are available to the general
ogy involves the comparison of “?xed premium/?xed ben e?t” products, like term life insurance, Where a predeter mined premium is stipulated for a given amount of coverage. 25
searching this database for this ?xed rate based on the amount of coverage and a number of other factors like age, gender,
consumer as evidenced by no or loW minimum insurance face
amount or premium requirements, 2) have higher policy expenses relative to the benchmarks established beloW With out regard to Whether these policy expenses take the form of
30
loads, COIs or other policy charges.
Institutional Products/ Pricing
Large companies and high-net-Worth individuals purchase insurance differently than the average “retail” buyer. Because large transactions and large groups of policies can cost less to sell and administer, carriers frequently reduce institutional policy costs to re?ect volume discounts and economies of scale. Because Institutional products are maintained longer, are more Well-funded, and are larger, they can be placed and administered more ef?ciently and have can have loWer expense ratios than products for Retail markets. SomeWhat
suf?ciently large number of life insurance Agents Who are 40
enough variety of products to make an informed decision as to
the most suitable product for the given client/need. Accordingly, What is needed in the art is method for accu
tively-intense corporate bene?ts plans, these type of institu tionally-priced products can actually include higher levels of
rately comparing the value and performance of a permanent life insurance policy.
certain policy loads and expenses. In either case, a distin
guishing characteristic of institutionally-priced products is 50
skill in the pertinent art hoW the identi?ed needs could be ful?lled.
only a small percent of insurance buyers. Institutional prod ucts Will be collectively de?ned as those policies that 1) only available to the quali?ed buyers as determined by either some minimum insurance face amount or premium requirements, or by virtue of certain personal or corporate ?nancial suitabil
SUMMARY OF THE INVENTION
The present invention comprises a method of benchmark
ity requirements, and 2) have loWer policy expenses relative
other policy charges.
60
In addition to the same advantage of loWer expenses
offered by Institutional Pricing, Experience-Rated Pricing placement products available to only a selective and segre
ing the ef?ciency of a permanent life insurance policy includ ing the steps of accessing a policy illustration, selecting a value point of the policy, identifying an array of aggregate expenses assessed by the insurance carrier to maintain the policy, calculating a sum of the array, and presenting the sum
Experience-Rated Pricing also offers the bene?t of loWer COI charges. Experience Rated products are either proprietary products of private
It is, therefore, to the effective resolution of the aforemen tioned problems and shortcomings of the prior art that the present invention is directed. HoWever, in vieW of the prior art in at the time the present invention Was made, it Was not obvious to those of ordinary
access to Institutional Pricing that offers loWer premiums to
to the benchmarks established beloW Without regard to Whether these policy expenses take the form of loads, COIs or
properly licensed to sell a given life insurance product or products as to be able to obtain the information on a Wide
are designed speci?cally to be used in certain administra
Widely available, threshold ?nancial requirements still limit
risk pro?le, etc. HoWever, due to the lack of published infor mation about the pricing of permanent life insurance prod ucts, and due to the number of combinations and permuta tions of the number of variables involved in the pricing of an individual life insurance product, the current database search-engine-like technology does not lend itself to the com parison of permanent life insurance products. For this reason, the consumer is currently relegated to, for lack of a superior method, seeking out this information on their oWn, but limited to the extent that they have a personal relationship With a
paradoxically, hoWever, because some institutional products
that they assess loWer or no charges for early surrender/ cancellation. While institutional products are becoming more
In this application, this current technology involves the cre ation of a database of published information and then simply
65
relative to the value point of the policy. The value point may be the face amount value of the policy, cash value of the policy or ?xed value of the policy by policy year. The array of aggregate expenses may include costs illustrated by the insur ance carrier to pay out death bene?t claims, policy charges
US 7,698,158 B1 5
6
less costs related to the payment of death claims exacted by
on, or one of Which payments are made for an extended
the insurance carrier, premium loads exacted by the insurance carrier as a percentage of premiums paid, taxes paid to at least
period. Therefore, an additional step may include calculating a cash value of the policy illustration for the plurality of policy
one governmental agency by the insurance carrier, cash
years.
value-based expenses exacted by the insurance carrier as a
Permanent life insurance policies gain cash value by
percentage of policy cash values, or ?xed expenses exacted by the insurance carrier in an amount calculated at the incep tion of the policy. In a preferred embodiment of the invention, the expected mortality rate for the policy illustration is established based
investment in mutual funds, stocks, bonds and other invest ment instruments. HoWever, projections made about the investment income are dif?cult, if not impossible to validate
since they rely on unknoWn assumptions about the future of the economy. Accordingly, a preferred embodiment of the invention includes the steps of identifying a projected invest
on industry published data and the illustrated costs to pay out
ment earnings forecast in the policy illustration, normalizing the projected investment earnings forecast, adding the project
death bene?t claims are compared With the expected mortal
ity rate Whereby the competitiveness and reasonableness of the policy illustration’s representations is determined. An expected policy expense charge value for the policy illustra
investment earnings to the cash value, and recalculating the current cash value of the policy illustration for the plurality of
tion may be established based on industry published data and
policy years.
the illustrated policy expense charges compared With
A direct comparison of a plurality of products may be achieved by selecting an array of additional permanent life insurance policies having substantially the same death ben e?t, and calculating the sum for each policy in the array. Additional steps may include averaging the sums of the array
expected policy expense charges Whereby the competitive ness and reasonableness of the policy illustration’s represen
tations is determined. An expected premium load for the policy illustration may also be established based on industry
20
published data and the illustrated premium loads compared With the expected premium loads Whereby the competitive
to create a benchmark value, and measuring neW policy illus
trations against the benchmark value. Market segments generally include, but are not necessarily
ness and reasonableness of the policy illustration’s represen
tations is determined. Similarly, an expected tax for the policy illustration based on industry published data may be resolved and the illustrated tax compared With the expected tax loads Whereby the competitiveness and reasonableness of the
policy illustration’s representations is determined. An expected cash-value-based expense value for the policy illus
25
30
tration based on industry published data is established and the
illustrated cash-value-based expense values compared With the expected cash-value-based expense values Whereby determine the competitiveness and reasonableness of the policy illustration’s representations is determined. An expected ?xed expense value for the policy illustration based on industry published data may be established and the illus trated ?xed expenses compared With the expected ?xed expenses Whereby determine the competitiveness and reason ableness of the policy illustration’s representations is deter
limited to, retail, institutional and experience-rated pricing. Accordingly, to compare products of the same category, addi tional steps include identifying a market segment for perma nent insurance products, grouping an array of additional per manent life insurance policies having substantially the same death bene?t and availability to the market segment, and calculating the sum for each policy in the array. Benchmarks values are obtained by averaging the sums of the array to create a benchmark value for the market segment, and mea
35
suring neW policy illustrations against the benchmark value. Benchmarking the ef?ciency of a permanent life insurance policy includes the steps of accessing a policy illustration, establishing an effective life span of the policy illustration,
40
identifying a ?rst amount attributed to death bene?t claims, identifying a second amount attributed to premium loads, identifying a third amount attributed to policy expenses, cal
mined.
culating a sum of the ?rst, second and third amounts for a
It is preferred that the step of normalizing the array of aggregate expenses is calculated in terms of present value and the array of expected aggregate expenses compared to the array of policy expenses assessed each year by the insurance carrier to maintain the policy. In addition, the timing and Weighting of the array of expected aggregate expenses is compared to the timing and Weighting of the array of policy expenses assessed by the insurance carrier to maintain the
45
plurality of policy years, averaging the sum for each year throughout the effective life span, calculating a cash value of the policy illustration for the plurality of policy years, iden tifying a projected investment earnings forecast in the policy
policy.
illustration, normaliZing the projected investment earnings forecast, adding the project investment earnings to the cash value, and recalculating the current cash value of the policy illustration for the plurality of policy years. 50
As opposed to term insurance, Which is not the subject of
the present invention, permanent life insurance is generally anticipated to insure an individual until death. Accordingly, the effective life span of a permanent life insurance policy is
based upon standard mortality table and might be adjusted for speci?c lifestyle and health issues knoWn about the insured. Accordingly, the steps may also include establishing an effec tive life span of the policy illustration, calculating the sum for a plurality of policy years, and averaging the sum for each year throughout the effective life span. This helps determine if a policy might be front-loaded With costs and expenses incurred early in the life span of the policy, or Whether the
55
costs by years is particularly important When determining the appropriateness of a policy that is completely funded early
resolved by accessing a mortality table, evaluating an expected mortality value based on the mortality table, and calculating a benchmark cost of insurance based on the
expected mortality value. Additional steps include establish ing a policy duration, evaluating an expected mortality value 60
based on each year of the policy duration, and calculating a benchmark cost of insurance based on the policy duration. For a more precise benchmark cost of insurance value, addi
tional steps include identifying an array of mortality variables
costs and expenses are more evenly distributed over a longer
period of time. As the cash value of a permanent life insurance policy is a strong ?nancial consideration, a breakdoWn of
In many cases, it is dif?cult to obtain the true cost of
insurance from a policy illustration. HoWever, costs of insur ance are based on mortality and, thus death bene?t paid. Accordingly, a benchmark cost of insurance rate may be
65
of a potential policy holder, and accessing a speci?c mortality table matching the array. It is therefore an object of the present invention to provide a method to quantify the value of a permanent life insurance
product against an industry benchmark.
(12) Ulllted States Patent
(10) Patent N0.:
Flagg (54)
US 7,698,158 B1
(45) Date of Patent:
LIFE INSURANCE POLICY EVALUATION
JP
02001088468 A
METHOD
(75) InVentOrZ
Apr. 13, 2010 4/2001
OTHER PUBLICATIONS a amp.FL a B ar 61) . F1gg.T
Keatin g , Peter, “Your Money or Your Life < insurance > ,” Ap r. 1999,
Money, vol. 28, No. 4, pp. 156-160.*
(73)
Assignee: TheInsuranceAdvisor Technologies,
P~ Booth et a1» Modern Actuarial Theory and Practice, PP 306-351,
Inc” Tampa’ FL (Us)
Chapman & Hall/CRC. Kenneth Black, Jr. and Harold D. Skipper, Jr., Life Insurance, Twelfth
( * ) Notice:
Subject to any disclaimer, the term of this
patent is extended or adjusted under 35 U S C 154(1)) b 1739 da S ' '
'
y
y '
EdltloItll’lclllaplier 10’ pd?‘ 2381341‘ ki
_f
lh
Kenne .13 ac ’ Jr‘ 8n. Ham D‘ S pper’ Jr" L1 6 & Heat Insur ance, Thirteenth Edition, pp. 279-295. I
Randy Barkacs, Cost Disclosure Versus Concept Disclosure: A Per
sonal Perspective, Journal of the American Society of CLU & ChFC, _
(22)
Joseph W. MacZuga, Crossover with Low Loads, WWW.Financial
Flled:
Jun- 51 2002
Planning.com, Financial Planning, May 2001.
Related US. Application Data
* Cited by examiner
(63) Continuation-in-part of application No. 09/694,899,
P1’Wary Examilferic- Luke Gilligan
?led on Oct. 24, 2000, noW Pat. NO. 6,456,979.
AsslswntExammeriRachel L Porter
(74) Attorney, Agent, or FirmiCourtney M. Dunn; Smith & Hopen P.A.
(51) Int. Cl.
G06Q 40/00
(2006.01)
(52)
us. Cl. ....................................... .. 705/4, 705/36 R
(57)
(58)
Field of Classi?cation Search ................... .. 77857345, S 1, _ ?l f 1 h h,
A method of evaluating a permanent life insurance policy including the steps of accessing a policy illustration, estab
ee app lcanon
(56)
e or Comp ete Seam
lstory'
ABSTRACT
lishing an effective life span of the policy illustration, identi
References Cited
fying a ?rst amount attributed to death bene?t claims, iden
tifying a second amount attributed to premium loads, U-S~ PATENT DOCUMENTS
identifying a third amount attributed to policy expenses, cal
4 837 693 A
6/1989 Schotz
culating a sum of the ?rst, second and third amounts for a
535233942 A
6/1996 Tyler et a1‘
plurality of policy years, averaging the sum for each year
5,6 5 5,085 A 5,926,792 A *
8/ 1997 Ryan et a1, 7/1999 Koppes et al. ..
5,956,691 A
9/1999
705/4
throughout the effective life span, calculating a cash value of the policy illustration for the plurality of policy years, iden
Powers - - - - - - - - - - -
- - - -- 705/4
tifying a projected investment earnings forecast in the policy
6,009,402 A * 12/1999 Whltworth 6,304,859 B1 : 10/2001 Ryan et al' ~~~~ ~~
705/4 705/38
illustration, normalizing the projected investment earnings forecast, adding the project investment earnings to the cash
*
FOREIGN PATENT Roscoe DOCUMENTS et . . . . . . . . . . . . . . . . ..
JP
359017656 A
Value’ illustration and recalculating for the plurality the of Current policyCash years. Value of the
1/1984
14 Claims, 16 Drawing Sheets 120
Access a First Policy Illustration
‘
130
Identify First Amount Attributed to Death Bene?t Claims
140
Identify Second Amount Attributed to
Premium Loads
150
Identify Third Amount Attributed to
Policy Expenses
Calculate Sum of l
2 First, Second and Third Amounts
Generate Report of ‘
Sum in COmparison to Other Policies
‘
US. Patent
Fi
Apr. 13, 2010
I 1
Sheet 1 0f 16
US 7,698,158 B1
Certi?ed public accountants, attorneys and other advisers have no
independent source of
permanent insurance pricing and value information,
lnsu rance
Carrier A
5‘
Permanent Insurance COls
Guarded as Proprietary by
Prior Art
Insurance Carriers
US. Patent
Apr. 13, 2010
Sheet 2 0f 16
US 7,698,158 B1
Constant for l
evaluation
purpos?s
Death bene?ts paid out. 80
100
I "
Policy Expenses
Carrier & servicing organization expenses for
policy design, underwriting and administration.
1 10 1
Investment
US. Patent
Apr. 13, 2010
Sheet 3 0f 16
US 7,698,158 B1
Fig. 3
{>—
Cost of insurance, premium loads, and policy expenses negatively affect the cash value ofthc policy,
Investment income must be sufficient to pay for expenses of policy While continuing to accumulate towards
endowment/maturity date.
'/ GOAL: Establish and -
C t f.
.
l
d
maintain high cash
05 o 1nsurance,prennum 0a s,
value ofpohcy
and policy expenses are low
{l
enough in Policy B to permit the cash value to steadily increase.
L
B
I
Cost of insurance, premium loads, and policy expenses
overburdened Policy A resulting Policy A
Cash I Value
IO
0 IF Time
3
in a zero cash value in year 20.
20
3O
4O
——>
US. Patent
Apr. 13, 2010
Fig. 4
Sheet 4 0f 16
US 7,698,158 B1
120
Access Illustration 21 First Policy
130
Identify Attributed FirsttoAmount Death 1
Bene?t Claims I40
Amount Premium Identify Attributed Second Loads to
150
Amount Policy Identify Attributed Expenses Third to
160R L Z First, Calculate ThirdSecond Amounts Sumand of
Generate Report of g Sum in Comparison to Other Policies
US. Patent
Apr. 13, 2010
Sheet 5 0f 16
US 7,698,158 B1
Access a First Policy
Illustration
Identify First Amount Attributed to Death Bene?t Claims
165
Amount Premium Identify Attributed Second Loads to
Repeat Calculations Over Life of Policy 1
Identify Third Amount PolicyAttributed Expenses to
Sum Generate to Other in Comparison Report Policiesof
E First, Calculate ThirdSecond Amounts Sumand of
US. Patent
Apr. 13, 2010
Sheet 6 0f 16
US 7,698,158 B1
120
Access Illustration a First Policy ’
Identify Attributed Bene?t First Claims toAmount Death
Identify Second
165
Amount Attributed to
Premlum Loads
Repeat Calculations Over Lif? ofpolicy
Amount Policy Identify Attributed Expenses Third to ‘ 175
Generate Cash Inception Value Report from to of
Z First, Calculate ThirdSecond Amounts Sumand of
165
of Current Subtract PolicyCash According SumValue from Investment t0 Illustrated Earnings
Maturity.
US. Patent
Apr. 13, 2010
US 7,698,158 B1
Sheet 7 0f 16
Fig. 7 120
Access Illustration 21 First Policy
Identify First Amount Attributed to Death
Bene?t Claims
Identify Second
165
Amount Attributed to i Premium Loads
5
Repeat Calculations Over Life of Policy
Identify Third Amount Attributed to
Policy Expenses
176
Generate Report of Inception Cash Value to Maturity. from
Z First, Calculate ThirdSecond Amounts Sumand of
166 Subtract Sum from
l
Current Cash Value
'
of Policy According ; to Normalized 1
Investment Earnings
US. Patent
Apr. 13, 2010
Sheet 8 0f 16
US 7,698,158 B1
Fig.8 190
Comparable Resolve Value Benchmark for Policies 120 Access a First Policy
Illustration 130
Repeat Steps 120 through 165 for
Comparable Policies.
Identify First Amount ‘
Attributed to Death Bene?t Claims
Identify Second
165
Amount Attributed to
Premium Loads
Identify Third Amount Attributed to
Policy Expenses
Z First, Calculate Second Sumand of 3 Third Amounts
l Repeat Calculations LOver Life of Policy
US. Patent
Apr. 13, 2010
Sheet 9 0f 16
Policy D J
US 7,698,158 B1
PolicyE J Least amount paid out in death bene?t claims
COIs
(COIs). Highest proportion of premiums goes to
Policy Charges
servicc—expenses.
Premium Loads \ All three policies have substantially similar Sums.
Fig. 10 Aggregate an array of
comparable policies with substantially similar Sums. 0
\’\
\
Evaluating the array according to the relative proportion of
CO1 Charges.
I
'
proportion Correlating of CO1 theCharges relative to a Service Index Value.
US. Patent
Apr. 13, 2010
Sheet 11 0f 16
US 7,698,158 B1
Fig. 12 Cost of Insurance (COl) Analysls Table %‘ = Percem of Industry standard table shown m Column (1)
(1)
(2) _
Policy Yr 8Age BoY) 1 2 3
50 51 52
0.00170 0.00242 0.00304
98 99 100
0.30565 0.32292 0.34061
‘
(4)
7
Male Age Naarest Rate
;
Gender Adj'd Benchmark %* Rate #N/A #N/A #N/A
Nonsmoker
(5) _
Tobacco Use Adj'd Benchmark %" Rate
0 00170 0 00242 0 00304
\
v
49 50 51
(3)
15-00 sau __
62 6% 52 6% 62 6%
Pro?le Adj'd Benchmark %' Rate
0 00106 000151 0 00190
(5)
Healih/Lifestyle
100 0% 100 0% 100 0%
0 00106 0 00151 0 00190
1 I
(7)
Pric|ng»Me1hod Adiustments
Retall Benchmark %’ Rate
lnsmutional Benchmark %' Rate
76 0% 76 0% 76 0%
64 0% 64 0% 64 0%
0.00081 0 00115 0 00145
0 00068 0 00097 0 00122
:
1
V
#N/A #N/A #N/A
7'
0 30565 0 32292 0 34061
62 6% 62 6% 62.6%
v
0 197134 0.20215 0.21322
100 0% 100 0% 100 0%
0 19134 0 20215 0 21322
V
76 0% 76.07% 75 0%
v
0 14542 0.15353 0 16205
64 0% 64 0% 64.0%
0 12246 0 12937 0 13646
Fig. 13 Cost of Insurance (COl) Analysls Table %‘ = Percent of Industry standard table shown in Column (1)
(1)
(2)
(3)
(4)
75-50 sau R_
__
(5)
Nonsmoker
_
(5)
HeallhlLlfestyle
E
(7)
PncmQ-Memod Adlustmems
Male Age
Gender Adj'd
Tobacco Use
Pro?le Adj'd
Retail
lnshtuhonal
Policy Yr &
Nearest
Benchmark
Adj'd Benchmark ‘
Benchmark
Benchmark
Benchmark
Age BoY)
Rate
1 2 3
50 51 52
0.00170 0 00242 0 00304
%' #N/A #NIA #NIA
Rate 0.00170 0.00242 0.00304
%' 62 6% 62.6% 62 6%
Rate 0 00106 0 00151 0.00190
%"
W
Rate
100 0% 100 0% 100 0%
0.00106 0 00151 0 00190
%'
Rale
76 0% 76 0% 76 0%
I
0.00081 0 00115 0 00145
%' 64 0% 64.0% 64.0%
.
Rate 0.00068 0 00097 0.00122 1
W "49 ,
98
0.30565 .
#NIA
l0.30565
62 6%
.0 19134
100 0%
;0.19134
76 0%
10 14542
64 0%
0 12246
50 51
99 100
0 32292 0 34061
#NIA #NIA
0.32292 0.34061
62.6% 62 6%
0 20215 0 21322
100 0% 100 0%
0 20215 0 21322
76 0% 76 0%
0 15363 0 16205
64 0% 64 0%
0.12937 0 13646
US. Patent
Apr. 13, 2010
Sheet 12 0f 16
US 7,698,158 B1
Fig. 14 Cost of Insurance (COI) Analysis Table ' = Percem of industry standard table shown |n Column (1)
(1) i
(2)
7
(3)
75—80 S&U
Policy Yr & i V
Age BoY) 1 2 3
50 51 52
(4)
i
i i
(5)
HeallhlLifeslyle
‘ 1
Gender Adj'd
Tobacco Use
Profile Adj'd
Retail
Benchmark
Adj'd Benchmark
Benchmark
Benchmark
Rate
"/u’
0 00170 0 00242 0 00304
Rate
#N/A #N/A #N/A
%‘
000170 0 00242 0.00304
Rate
62.8% 62.6% 62.6%
%"
0.00106" 0.00151 0.00190
.
Rate
100 0% 100 0% 100 0%
0 00106 0 00151 0 00190
%'
0 30565 0 32292 0 34061
#N/A #N/A #N/A
i
0 30565 0 32292 034061
52.6% 82.6% 62.6%
76 0% 76 0% 76 0%
1
0.19134 0.20215 0.21322
100 0% 100 0% 100 0%
019134 0 20215 0 21322
institutional Benchmark
Rate
%'
0 00081 0 00115 0 00145
i
v
(7)
Pr|cing»Melr od Adjuslmems
Nearest
e 98 99 100
__
Male Age
‘v 49 50 51
(5)
Nonsmoker
04 0% 64 0% 64 0%
Rale 0 00068 0.00097 0 00122
.
r
+
v
76 0% 76 0% 76 0%
0.14542 0 15363 0 16205
64 0% 64 0% 64 0%
0 12246 0 12937 0 13646
Fig. 15 Cost of Insurance (COI) Analysis Table %* = Percentof industry standard lable shown In Column (1)
(1)
(2) 75-80 S&U
(3)
(4)
___
_
(5)
Nonsmoker
Male Age
Gender Adj'd
Tobacco Use
Policy Yr 81
Nearest
Benchmark
Adj'd Benchmark
Age BoY)
Rate
1 2 3
50 51 52
0 00170 0 00242 0 00304
9e 99 100
0 30565 D 32292 0 34061
#NIA “MIA "MIA
i
0
49 50 51
%'
Rale 0 00170 0 00242 0 00304
%" 626% 62 6% 02 6%
;
v
V
#NIA #N/A #N/A
0 30565 0 32292 0 34061
Rate 000106 0 00151 0 00190
‘ V
“
n
0 19134 0 20215 0.21322
"
rk
%‘ 100.0% 100.0% 100.0%
Rate 0.00105 0.00151 0.00190
0.19134 0.20215 0.21322
(7)
Retail
lnslilutiunal
Benchmark
Benchmark
%‘
Rate
76 0% 76.0% 76.0%
l 100.0% 100.0% 100.0%
l ‘
PricmgMetr 0d Adjustments
Profile Adj'd 7
V
62 6% 62.6% 62 6%
(5)
Health/Lifestyle
0 00081 0 00115 0 00145
%" 64 0% 54 0% 64 0%
i
0 14542 0 15363 0 16205
0 00068 0 00097 0 00122
l
v
160% 76 0% 76 0%
Rate
V
04 0% 64.0% 64 0%
0 1224s 0 12937 013646
US. Patent
Apr. 13, 2010
Sheet 13 0f 16
US 7,698,158 B1
Fig. 16 Cost of Insurance (COI) Analysls Table %' = Percent oflndustry standard table shown in Column (1)
(1)
(2)
(3)
(4)
75-80 S&U _
Male Age Nearest
Policy Yr 8. Age BoY 1 2 3
%'
0 00170 0.00242 0 00304
1
‘
‘V
v
49 {0 51
Gender Adj‘d Benchmark
Rate
50 51 52
98 e9 100
*
#N/A #NIA #NIA
Rate
%‘
#N/A #N/A #N/A
__
100 0% 100.0% 100 0%
"
0 30565 0 32292 0 34061
62 6% 02 0% 62 6%
100 0% 100.01/u 100 0%
(7)
Retail Benchmark
Rate
"/0’
000106 0 00151 000190
Rate
76.0% 76.0% 76.0%
v
0 19134 0 20215 0 21322
l l
Pricin?ethcd Agjustmems
Prollle Adj‘d Benchmark %‘
0 00106 0 00151 0 00190
(5)
HeallhlLlfestyle
Rate
62 6% 62 6% 62 6%
1
0 30565 0 32292 0 34061
(5)
Nonsmoker
Tobacco Use Adj'd Benchmark
0 00170 0 00242 0 00304
7
0 10134 0 20215
76.0% 10.0%
0 21322
76.0%
lnslllulronal Benchmark ‘
%‘
0.00081 0.00115 0.00145
64 0% 64 0% 64 0%
1
1
i
v
0.14542 0.15303 0.16205
54 0% 54 0% 64 0%
Fig. 17 Cost of Insurance (COI) Analysls Table ' = Percentof Industry standard table shown in Column (1)
(1)
(2)
(3)
75-80 S&U _
Policy Yr 81 Age EloYl 5 " '1 2 3
50 51 52
0 00110 0.00242 0 00304
98 99 100
0.30565 0 32292 0 34061
W . 49 50 51
Male Age Nearest Rate
(4) *7
Gender Adj‘d Benchmark %' Rate #N/A #N/A #N/A
.
0 00110 0 00242 0 00304
Nonsmoker
Tobacco Use Adj‘d Bcnchrngrk %" Rate 02 0% 62 6% 62 0%
. #N/A #N/A #NIA
0.30565 0.32292 0 34061
0 00100 0 00151 0.00100
(5) i7’
HealthlLlfestyle
Pro?le Adj‘d Benchmark %' Rate 100 0% 100 0% 100 0%
v 62 6% 62 6% 62 6%
0 19134 0 20215 0 21322
0 0010s 0.00151 0 00190
(6) Pricing-Memo
Retarl Be chmark %' Rate 10 01/. 76 0% 70 0%
. 100 0% 100 0% 100 0%
0 19134 0 20215 0 21322
0 00081 0 00115 0 00145
l
(7)
AE|uslments
lnslitullonal Benchmark "/0" Rate 04.0% 64.0% 7 7 05.0%
l 76 0% 76 0% 76 0%
0.14542 0 15363 016205
Rate 0 00068 0 00097 70700122
0.00000 0.0009! 7 0.00122
. 84.0% 64.0% 64.0%
0.12246 0.12937 0.13646
0 12246 0 12037
0 13646
US. Patent
Apr. 13, 2010
Sheet 14 0f 16
US 7,698,158 B1
Fig. 18 Policy Name:
Sample VUL (Experience-Rated)
Abbreviated Name“;
V
‘I
Policy Type:
Sample VUL
l
VUL (VUL, UL or WL)
Insured/Applicant Sex (M/F):
' MHMWlVl "(ii/1'5?
Insured/Applicant Age/Age Group:
I I
50
Insured/Applicant Health Pro?le:
Preferred (Standard, Preferred, or Preferred+)wm
Smoker Status:
NS (NS or SM)
Face Amount:
I
1,000,000
Death Bene?t Option
Level
Endowment/Maturity Age:
‘
Wm“
Pricing Category: MM
M
100
,
Retail}
lnslitutional
W
'
Institutional
M
Experience-Rated
1
‘A
5
Funding Intent:
WWW'WWM
xW
‘
Wm
Min Fund
W
Max Fund Single PQa'y ‘‘‘‘ “M
Min
WWW
.
Hné?ww
:
1
Planned Annual Premium (for CV Comparison)
Té?ét'?b?dih‘d P‘éilbdmn
‘Mm
“may
M
,l
'
M
_,__
Till-E0" “mm _ M
V‘
1
m ''''' “W
10,000 10 Yrs
“
" " “WNWWTMMFWMW WMWTGWWWP"
Target Net Average Policy Earnings Rate:
W'WWW
M MM,
55
Target Premium (for Surrender Charge 0555*“ w
Surrender Chargeljuration
.
MAW‘
10.00%
M
"nu-“W
WM '' '
' PM?“
“
US. Patent
Apr. 13, 2010
Sheet 15 0f 16
US 7,698,158 B1
1) Locate the [OW
corresponding to
the. origmo‘ pohcy Issue
Pohcy Year
age 50 1n the
Age
6
7 ‘
left-most age
7
1;
\.
I\
..
49
l ‘\ X50
1
2 locate the column
\ corrospondmg to the 8th
888332 '
38852 “ '
888132 '
33825’
0.00540
0 00601
0.00337
000.410
0 00575
0 00045
0 00310
*1
9
.
0 00379
51
0 00364
0 00443
“00526
0.00612
000700
52
0.00392
0.00465
Q ‘557
0.00659
0.00769
53
0 00424
0 00510
0\
0 00736
0 00862
\
‘W 0‘ 18 P40 “W the top row/heading of the tome
3) look up the rate at the lntersectlon of the Age 50 row and the 8th Year column.
F lg ' . 20 1) Locate the
_
row
_
Pohcy Year
corresponding to
A96
Ultimate
25
24
25
0.02016 0.02174 0 02320
0.02199 0.02362 0 02573
0.02404 0 02619 0 02853
Rote
Age
the or'lgmal pollcy issug Q95 50 in the lettimost age column
47 48 49 )
I
"i, ,'
20102803
0.03063 0 03357 0 03661
03,110 5
51
0 02755
0.03055
0.05592
52
0 02981
0 03292
0 03836
53
0.03232
0.03792
0.04394
54 55 56
0 03704 0 04248 0 04866
0 04321 0 0492l 0 05515
0 05029 0 05635 0 06355
57
0 05455
0 06222
0 07138
TI‘
.
’
"
"
72 73 74 75
‘
\
g
/
2) Follow the original issue age 50 row to the far right column labeled "Ultlmate Rate", then follow that column down to the lntersecllon of that column, to the age 80 row
US. Patent
Apr. 13, 2010
Sheet 16 0f 16
US 7,698,158 B1
Fig. 21 Smoker-Nonsmoker 1990-95 Experience by Issue Age Separately for Medical, Paramedical and Nonmedical; Males and Females Cmbined Issues of 1980-94 Studied Between 1990 and 1995 Anniversaries Expected Deaths Based on 1975-80 Basic Tables (Exposures in $1,000,000 Units;
Actual Deaths in $1,000 Units)
41)
(2)
(3)
(4)
(5)
(6)
(7)
(8) Ratio of
Age
Actual Mortality
Actual Mortality
Exposure
Deaths
Deaths
Ratio
Nonsmoker Mortality Ratios
0~19 $208,763 20-29 $651,272 30-39 $1,379,160 40-49 $754,661 50-59 $258,461 60 & $99,069
$71,835 $284,100 $777,645 $988,283 $868,216 $924,048
$4,332 $76,261 $269,406 $377,036 $379,014 $291,313
81.0 128.8 117.3 120.1 153.4 181.7
1.11 1.94 2.34 2.17 2.45 2.31
60.9 $481,333 $1,397,365
1376
2.26
at Issue
Ratio Exposure
72.7 66.4 50.1 55.2 62.6 78.8
$8,232 $88,682 $198,505 $127,523 $44,419 $13,969
Smoker
over
Total $3,351,388 $3,914,130
US 7,698,158 B1 1
2
LIFE INSURANCE POLICY EVALUATION METHOD
son shopping”, there is considerable disincentive for consum ers to separate the purchase of life insurance from these value
RELATED APPLICATIONS
added services. In the current distribution environment Where Agents rep resent only a small fraction of the total number of insurance
carriers Whose products could otherWise prove suitable, and
This application is a Continuation-in-Part and claims pri ority to Us. patent application Ser. No. 09/694,899 ?led Oct. 24, 2000 noW U.S. Pat. No. 6,456,979 incorporated herein by
Without any effective means for Agents to compare product pricing on behalf of the consumer, separating the insurance
reference.
purchase from the value added services Would require the consumer to l) engage and pay a fee-for-service Advisor to
repeat the planning already prepared by the Agent, 2) contact multiple other Agents for “price quotes” (i.e. hypothetical
FIELD OF INVENTION
This invention relates to a method for evaluating ?nancial
policy illustrations), and 3) either attempt to compare the
information, and more speci?cally to evaluating permanent life insurance policies for cost and performance criteria.
hypothetical policy illustrations involving literally thousands of computations (as described above/beloW), or engage and pay a another fee-for-service Advisor to do the “comparison
shopping” for them. As a result, because of this high-level of
BACKGROUND OF THE INVENTION
personal Agent involvement, and additional and redundant time, energy, dif?culty and cost preventing consumers from
While permanent life insurance products that differ by virtue of their makeup are distinguished from one another by
20
industry accepted naming conventions, the insurance indus try does not formally label the different pricing methodolo
general consumer that also typically have higher costs asso ciated With the distribution of the product, these products Will
gies of the different types of products priced and targeted for different types of consumers. For instance, there are only 3
basic types of permanent life insurance When grouped by virtue of their makeup: (1) Whole life insurance Which typi cally provides level death bene?t coverage for the Whole of the insured’s life; (2) universal life insurance policies Which are ?exible-premium, adjustable death bene?t, unbundled life contracts; and (3) variable universal life Whose values
doing some level of comparison shopping, these products typically have high(er) loads or high(er) surrender charges. As such, by analogy With other products marketed to the
25
be referred to as “Retail” products.
In addition to the “Retail” products marketed and sold by the existing traditional distribution systems of Agents, there
30
are other forms of “Retail” products marketed directly to the general consumer through alternative distribution channels like the Internet, television, direct mail, or through a variety of
may vary directly With the performance of a set of earmarked
associations to Which the consumer may be a member. These
investments. Life & Health Insurance: 13th Edition. Black, Kenneth, Jr., Skipper, Harold D., Jr. Prentice Hall (2000). It
products are customarily marketed on the basis of offering
should be noted that variable life is an early evolution of the
these reasons, implies the promise of superior value to the
category of variable life insurance policies.
loWer or no loads, or loWer or no surrender charges, and for 35
consumer. For instance, a characteristic representation of one
distinguished products that differ by virtue of the market for
of these “LoW-Load Direct-Retail” products is that they “dra matically reduce product charges and eliminate front-end and
Which they are priced and to Which they are marketed, all
back-end sales loads . . . ” and that these products are
While no such similar formal naming convention exists to
policies can, nonetheless, be categoriZed by the nature of the underlying expenses as to COIs, Premium-Based Charges, Cash-Value-Based Charges, and Fixed-Type Charges, and the
“designed from the investor’s perspective and noW offers a 40
manner in Which these expenses are assembled into the fol
loWing 3 basic groups based on the folloWing 3 different
markets/pricing methodologies: 1) Retail Products/Pricing 2) Institutional Products/ Pricing 3) Experience-Rated Products/ Pricing Retail Products/Pricing The life insurance needs of the general consumer are still
45
life insurance plan that provides a good vehicle to accumulate and transfer Wealth.” Of course, the implication is that by reducing or eliminating certain policy loads, these “No/Low Load” products offer an inherently superior value, and have been developed in direct response to the absence of any means for either the direct consumer or the Agents to easily and
simply compare insurance product pricing. In the absence of complete product pricing information that is vital to making an informed insurance decision, consumers are unable to seek
out, identify and purchase the mo st ef?ciently priced product, 50
and in so doing, create pressure in the market to squeeze out
largely served by the existing distribution system of Agents
the inef?ciently-priced products. As such, the market of cer
and Brokers (herein collectively “Agents”) Who represent a
tain insurance product manufacturers has responded by
particular insurance company or group of companies. This
reducing or eliminating those policy costs that are most vis ible to the general consumer. HoWever, as previously mentioned, the most in?uential
method of distribution typically involves the “bundling” the sale of the life insurance product together With some level of value-added ?nancial planning service related directly or indirectly to the need for life insurance (e. g. like determining
55
policy pricing component are typically the COIs, Which have as much as 5-Times the impact over policy pricing than do the
the amount of life insurance needed though a capital needs
visible, disclosed policy loads and expenses. From the per spective of the insurance company, insurance is simply the
analysis, general retirement planning, overall bene?t plan ning and consulting, income tax planning, business continu
60
ity consulting and ?nancing, general estate planning, estate
transfer of risk of ?nancial loss from an individual Where that risk is unpredictable, to a group of individuals that is su?i
tax ?nancing, etc.). There is often a high-level of personal
ciently large to make that risk both predictable and fundable.
involvement associated With the marketing and sale of a par
COIs are the mechanism by Which life insurers typically “fund” the payment of these death claims. As such, insurance
ticular insurance company’s products by the traditional Agent. Because of this high-level of personal involvement leading up to the purchase of life insurance, and absent any easy and convenient means of doing some level of “compari
65
companies pool policies to make these risks more predictable, and the larger the pool, the more predictable the risk. This pooling, Which has the effect of combining large and small
US 7,698,158 B1 3
4
policies, and loW and high risk segments of the pool, averages the variables that contribute to premium prices. Since differ ent groups of policyholders have different claims experience and expenses pro?les, premiums Will vary depending on the claims experience and expenses for the group being insured. In effect, this averaging cross-subsidiZes smaller transactions and higher-risk segments With excess “pro?ts” from the larger transactions and loWer-risk segments in the pool. In addition, as previously mentioned, certain insurers
gated pool of quali?ed companies and quali?ed individuals. Experience-Rated products are priced for the superior claims experience of professionals, business executives and oWners, and high net Worth individuals. Because this group enjoys healthier lifestyles and better health care, they live longer, and
therefore, experiences loWer mortality rates. Products priced for this market generally have loWer COI charges than prod ucts sold to retail and institutional markets, in similar form or fashion as to the Way GEICO® auto insurance selects loW
“load” the COIs to cover other policy expenses that are not disclosed elseWhere. For instance, some policies marketed as
risk drivers for their pool, and then charges loWer premiums corresponding to the superior claims experience of that pool.
“no/loW-load” policies do not disclose certain policy expenses or loads, even though they must be paid (e.g. State Premium Taxes, Federal Deferred Acquisition Costs (DAC) Taxes, and the cost to distribute the policies [policies do not distribute themselves]). As such, some of these “No/LoW
de?ned as those policies that l) are only available to the quali?ed buyers as determined by either some minimum insurance face amount or premium requirements, or by virtue
Load” products include the same, or in some cases, higher “loads” to cover the costs of distributing the policy directly to the consumer rather than through anAgent, but these loads are not disclosed, but instead are often “hidden” inside the
Experience-rated products Will therefore be collectively
of certain personal or corporate ?nancial suitability require ments, or by virtue of some occupational or lifestyle suitabil
ity requirement and 2) have loWer COIs relative to the bench marks established beloW. 20
There is presently no technology for the comparison of
unpublished “loaded” COI charges. Consequently, because
permanent life insurance products. The only existing technol
these “No/LoW Load” products are marketed to the general consumer and also typically have higher costs associated With the distribution of the product, these products Will also be referred to as “Retail” products, Which Will be collectively de?ned as those policies that l) are available to the general
ogy involves the comparison of “?xed premium/?xed ben e?t” products, like term life insurance, Where a predeter mined premium is stipulated for a given amount of coverage. 25
searching this database for this ?xed rate based on the amount of coverage and a number of other factors like age, gender,
consumer as evidenced by no or loW minimum insurance face
amount or premium requirements, 2) have higher policy expenses relative to the benchmarks established beloW With out regard to Whether these policy expenses take the form of
30
loads, COIs or other policy charges.
Institutional Products/ Pricing
Large companies and high-net-Worth individuals purchase insurance differently than the average “retail” buyer. Because large transactions and large groups of policies can cost less to sell and administer, carriers frequently reduce institutional policy costs to re?ect volume discounts and economies of scale. Because Institutional products are maintained longer, are more Well-funded, and are larger, they can be placed and administered more ef?ciently and have can have loWer expense ratios than products for Retail markets. SomeWhat
suf?ciently large number of life insurance Agents Who are 40
enough variety of products to make an informed decision as to
the most suitable product for the given client/need. Accordingly, What is needed in the art is method for accu
tively-intense corporate bene?ts plans, these type of institu tionally-priced products can actually include higher levels of
rately comparing the value and performance of a permanent life insurance policy.
certain policy loads and expenses. In either case, a distin
guishing characteristic of institutionally-priced products is 50
skill in the pertinent art hoW the identi?ed needs could be ful?lled.
only a small percent of insurance buyers. Institutional prod ucts Will be collectively de?ned as those policies that 1) only available to the quali?ed buyers as determined by either some minimum insurance face amount or premium requirements, or by virtue of certain personal or corporate ?nancial suitabil
SUMMARY OF THE INVENTION
The present invention comprises a method of benchmark
ity requirements, and 2) have loWer policy expenses relative
other policy charges.
60
In addition to the same advantage of loWer expenses
offered by Institutional Pricing, Experience-Rated Pricing placement products available to only a selective and segre
ing the ef?ciency of a permanent life insurance policy includ ing the steps of accessing a policy illustration, selecting a value point of the policy, identifying an array of aggregate expenses assessed by the insurance carrier to maintain the policy, calculating a sum of the array, and presenting the sum
Experience-Rated Pricing also offers the bene?t of loWer COI charges. Experience Rated products are either proprietary products of private
It is, therefore, to the effective resolution of the aforemen tioned problems and shortcomings of the prior art that the present invention is directed. HoWever, in vieW of the prior art in at the time the present invention Was made, it Was not obvious to those of ordinary
access to Institutional Pricing that offers loWer premiums to
to the benchmarks established beloW Without regard to Whether these policy expenses take the form of loads, COIs or
properly licensed to sell a given life insurance product or products as to be able to obtain the information on a Wide
are designed speci?cally to be used in certain administra
Widely available, threshold ?nancial requirements still limit
risk pro?le, etc. HoWever, due to the lack of published infor mation about the pricing of permanent life insurance prod ucts, and due to the number of combinations and permuta tions of the number of variables involved in the pricing of an individual life insurance product, the current database search-engine-like technology does not lend itself to the com parison of permanent life insurance products. For this reason, the consumer is currently relegated to, for lack of a superior method, seeking out this information on their oWn, but limited to the extent that they have a personal relationship With a
paradoxically, hoWever, because some institutional products
that they assess loWer or no charges for early surrender/ cancellation. While institutional products are becoming more
In this application, this current technology involves the cre ation of a database of published information and then simply
65
relative to the value point of the policy. The value point may be the face amount value of the policy, cash value of the policy or ?xed value of the policy by policy year. The array of aggregate expenses may include costs illustrated by the insur ance carrier to pay out death bene?t claims, policy charges
US 7,698,158 B1 5
6
less costs related to the payment of death claims exacted by
on, or one of Which payments are made for an extended
the insurance carrier, premium loads exacted by the insurance carrier as a percentage of premiums paid, taxes paid to at least
period. Therefore, an additional step may include calculating a cash value of the policy illustration for the plurality of policy
one governmental agency by the insurance carrier, cash
years.
value-based expenses exacted by the insurance carrier as a
Permanent life insurance policies gain cash value by
percentage of policy cash values, or ?xed expenses exacted by the insurance carrier in an amount calculated at the incep tion of the policy. In a preferred embodiment of the invention, the expected mortality rate for the policy illustration is established based
investment in mutual funds, stocks, bonds and other invest ment instruments. HoWever, projections made about the investment income are dif?cult, if not impossible to validate
since they rely on unknoWn assumptions about the future of the economy. Accordingly, a preferred embodiment of the invention includes the steps of identifying a projected invest
on industry published data and the illustrated costs to pay out
ment earnings forecast in the policy illustration, normalizing the projected investment earnings forecast, adding the project
death bene?t claims are compared With the expected mortal
ity rate Whereby the competitiveness and reasonableness of the policy illustration’s representations is determined. An expected policy expense charge value for the policy illustra
investment earnings to the cash value, and recalculating the current cash value of the policy illustration for the plurality of
tion may be established based on industry published data and
policy years.
the illustrated policy expense charges compared With
A direct comparison of a plurality of products may be achieved by selecting an array of additional permanent life insurance policies having substantially the same death ben e?t, and calculating the sum for each policy in the array. Additional steps may include averaging the sums of the array
expected policy expense charges Whereby the competitive ness and reasonableness of the policy illustration’s represen
tations is determined. An expected premium load for the policy illustration may also be established based on industry
20
published data and the illustrated premium loads compared With the expected premium loads Whereby the competitive
to create a benchmark value, and measuring neW policy illus
trations against the benchmark value. Market segments generally include, but are not necessarily
ness and reasonableness of the policy illustration’s represen
tations is determined. Similarly, an expected tax for the policy illustration based on industry published data may be resolved and the illustrated tax compared With the expected tax loads Whereby the competitiveness and reasonableness of the
policy illustration’s representations is determined. An expected cash-value-based expense value for the policy illus
25
30
tration based on industry published data is established and the
illustrated cash-value-based expense values compared With the expected cash-value-based expense values Whereby determine the competitiveness and reasonableness of the policy illustration’s representations is determined. An expected ?xed expense value for the policy illustration based on industry published data may be established and the illus trated ?xed expenses compared With the expected ?xed expenses Whereby determine the competitiveness and reason ableness of the policy illustration’s representations is deter
limited to, retail, institutional and experience-rated pricing. Accordingly, to compare products of the same category, addi tional steps include identifying a market segment for perma nent insurance products, grouping an array of additional per manent life insurance policies having substantially the same death bene?t and availability to the market segment, and calculating the sum for each policy in the array. Benchmarks values are obtained by averaging the sums of the array to create a benchmark value for the market segment, and mea
35
suring neW policy illustrations against the benchmark value. Benchmarking the ef?ciency of a permanent life insurance policy includes the steps of accessing a policy illustration, establishing an effective life span of the policy illustration,
40
identifying a ?rst amount attributed to death bene?t claims, identifying a second amount attributed to premium loads, identifying a third amount attributed to policy expenses, cal
mined.
culating a sum of the ?rst, second and third amounts for a
It is preferred that the step of normalizing the array of aggregate expenses is calculated in terms of present value and the array of expected aggregate expenses compared to the array of policy expenses assessed each year by the insurance carrier to maintain the policy. In addition, the timing and Weighting of the array of expected aggregate expenses is compared to the timing and Weighting of the array of policy expenses assessed by the insurance carrier to maintain the
45
plurality of policy years, averaging the sum for each year throughout the effective life span, calculating a cash value of the policy illustration for the plurality of policy years, iden tifying a projected investment earnings forecast in the policy
policy.
illustration, normaliZing the projected investment earnings forecast, adding the project investment earnings to the cash value, and recalculating the current cash value of the policy illustration for the plurality of policy years. 50
As opposed to term insurance, Which is not the subject of
the present invention, permanent life insurance is generally anticipated to insure an individual until death. Accordingly, the effective life span of a permanent life insurance policy is
based upon standard mortality table and might be adjusted for speci?c lifestyle and health issues knoWn about the insured. Accordingly, the steps may also include establishing an effec tive life span of the policy illustration, calculating the sum for a plurality of policy years, and averaging the sum for each year throughout the effective life span. This helps determine if a policy might be front-loaded With costs and expenses incurred early in the life span of the policy, or Whether the
55
costs by years is particularly important When determining the appropriateness of a policy that is completely funded early
resolved by accessing a mortality table, evaluating an expected mortality value based on the mortality table, and calculating a benchmark cost of insurance based on the
expected mortality value. Additional steps include establish ing a policy duration, evaluating an expected mortality value 60
based on each year of the policy duration, and calculating a benchmark cost of insurance based on the policy duration. For a more precise benchmark cost of insurance value, addi
tional steps include identifying an array of mortality variables
costs and expenses are more evenly distributed over a longer
period of time. As the cash value of a permanent life insurance policy is a strong ?nancial consideration, a breakdoWn of
In many cases, it is dif?cult to obtain the true cost of
insurance from a policy illustration. HoWever, costs of insur ance are based on mortality and, thus death bene?t paid. Accordingly, a benchmark cost of insurance rate may be
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of a potential policy holder, and accessing a speci?c mortality table matching the array. It is therefore an object of the present invention to provide a method to quantify the value of a permanent life insurance
product against an industry benchmark.
