Selecting the best cash value life insurance policy is a difficult task involving a number of complicated concepts and analyses. However, because the amount insurers credit to cash values on CAWL policies is a critical element of the overall cost of the protection, prospective insureds should put primary focus on how the company determines the amount they credit to the cash accumulation account.
The amount insurers credit to the accumulation account each year depends on four factors:
- expenses charged against the policy;
- mortality charges assessed against the policy;
- net investment yield earned by the insurer on its portfolio of investments; and
- method used to allocate interest to various blocks of policies.
The cash value at the end of any given year is equal to the cash value from the end of the prior year plus premiums (or less withdrawals) paid during the year, less the insurer’s expense and mortality charges and plus the insurer’s interest credits. The annual report should usually explicitly show the expense and mortality charges and the amount of interest the insurer credits each year.
Reproduced with permission. Copyright The National Underwriter Co. Division of ALM