Return of Premium Analysis - Summary
The purpose of this calculation is to
demonstrate the effective "rate of return" or the "interest
rate" that you would have to earn in order to duplicate the
benefits provided by the Return of Premium feature offered
in the level term insurance policy.
The assumption made by this analysis is
that you have two options:
1. Purchase a basic level term policy
which provides no Return of Premiums if you cancel the policy.
2. Pay more in order to obtain a Return of Premium product
which will refund premiums at the end of the initial level
period.
Premium
including Return of Premium feature : |
**
$745.00 |
Basic policy Premium
: |
$560.00 |
|
-------------- |
Difference in
annual cost for 30 years : |
$185.00 |
Return of Premium
in 30 Years : |
** $22,350.00
|
To determine the effective rate of return
we assume that the $185.00 per year is placed into an alternative
investment with the objective of generating $22,350.00 **.
In order to do that, the alternative investment would need
to provide you with a 7.93% annually compounded rate of return.
The following will show the year by year results which confirm
the rate of return.
| Year
|
Age |
Actual Deposit |
Alternative
Investment Value |
|
|
|
|
1 |
35 |
185.00 |
199.68 |
2 |
36 |
185.00 |
415.20 |
3 |
37 |
185.00 |
647.82 |
4 |
38 |
185.00 |
898.90 |
5 |
39 |
185.00 |
1,169.90 |
6 |
40 |
185.00 |
1,462.41 |
7 |
41 |
185.00 |
1,778.12 |
8 |
42 |
185.00 |
2,118.88 |
9 |
43 |
185.00 |
2,486.68 |
10 |
44 |
185.00 |
2,883.67 |
11 |
45 |
185.00 |
3,312.15 |
12 |
46 |
185.00 |
3,774.63 |
13 |
47 |
185.00 |
4,273.80 |
14 |
48 |
185.00 |
4,812.58 |
15 |
49 |
185.00 |
5,394.11 |
16 |
50 |
185.00 |
6,021.78 |
17 |
51 |
185.00 |
6,699.26 |
18 |
52 |
185.00 |
7,430.48 |
19 |
53 |
185.00 |
8,219.73 |
20 |
54 |
185.00 |
9,071.60 |
21 |
55 |
185.00 |
9,991.06 |
22 |
56 |
185.00 |
10,983.47 |
23 |
57 |
185.00 |
12,054.62 |
24 |
58 |
185.00 |
13,210.77 |
25 |
59 |
185.00 |
14,458.65 |
26 |
60 |
185.00 |
15,805.54 |
27 |
61 |
185.00 |
17,259.30 |
28 |
62 |
185.00 |
18,828.40 |
29 |
63 |
185.00 |
20,522.01 |
30 |
64 |
185.00 |
22,350.00 |
|
|
|
|
IMPORTANT NOTE: THIS IS NOT AN ILLUSTRATION
OF INSURANCE POLICY VALUES. The above values are ONLY a GUIDE
to show how the theoretical alternative investment would perform
if you invested the difference in premium cost at the assumed
rate of return.
|
