At best, life insurance is a very complicated product that is extremely difficult to evaluate and compare. Life insurance policies are complex amalgams of varying legal, financial, and probabilistic elements that cannot really be reduced to an all-encompassing unitary measure for comparison purposes. However, there are a number of commonly used measures or methods for policy comparison that can be of aid in evaluating purchase alternatives. Keep in mind that none of these methods does, or could, take into account all of the factors that should be considered when making the purchase decision. But, if planners use several methods and they keep in mind the strengths and weaknesses of each during the comparison process, these methods will be quite helpful in at least eliminating policies that should not be considered.
The following are commonly used policy comparison techniques:
- The “traditional net cost” method
- The “interest-adjusted net surrender cost” method
- The “interest-adjusted net payment cost” method
- The “equal outlay” method
- The “cash accumulation” method
- The “Linton yield” method
- The “Belth yearly yield” method
- The “Belth yearly price of protection” method
- The “Baldwin” method
Reproduced with permission. Copyright The National Underwriter Co. Division of ALM