IRR on Whole Life Dividen Paying
- Thread starter leo
- Start date
Use an online calculator.
Present value 0
Payments = premiums
Future value = cash value of a point in the future on the illustration
Period = point in the future that you used for the future value (e.g. 20 years)
Solve for rate. That will essentially give you a true IRR on your premium dollars.
Present value 0
Payments = premiums
Future value = cash value of a point in the future on the illustration
Period = point in the future that you used for the future value (e.g. 20 years)
Solve for rate. That will essentially give you a true IRR on your premium dollars.
- 4,575
The only part I never liked about this aspect was it makes the assumption the death benefit wasn't part of the premium & that the only aspect was a savings rate of return. I always felt if I was looking at 20 year or 30 year IRR, the premium should be adjusted to subtract what a term policy would have cost
Most of the ROP policies out there actually include this in their calculations and on their quotes. It would be more challenging to include ART in this calculation but you could certainly levelize the term cost (20/30yr term) using a similar calculator.
Good point.
- 10,329
Many WL illustrations systems will do a comparison report showing an IRR comparison of term+investment vs. WL.
On the report, adjust the investment return until it equals the WL return.
Then you have your IRR adjusted for Term Premiums.
On the report, adjust the investment return until it equals the WL return.
Then you have your IRR adjusted for Term Premiums.
- 11,277
Focusing on IRR... is a losing battle and strategy. It primarily focuses on the illustration, what the contract IS, and how that illustration is structured.
I would much rather focus on an EXTERNAL rate of return: what it's designed to DO for the client.
I use a Capital Equivalent Value comparing tax-exempt cash flow from the policy versus what would be required from a taxable policy.
In short: tax-exempt loan cash flow from a whole life policy will beat any taxable investment earning 10% each year for 10 years. (There's a lot of factors into this analysis, but I frequently do this calculation over a 10 year period.)
My own parents: They would have to earn 11.5%+ each year for 10 years in a taxable investment to equate what we're doing on a tax-exempt basis using life insurance.
For a contributory ESOP strategy, we figured out for one particular case, that you'd have to grow the business value (not just your sales) - the entire value of the business by 19.11% each and every year for five years and STILL find a buyer at that higher amount to equate what we could do using the tax code.
So yes, you can certainly do the IRR on the policy, but I wouldn't make that your value proposition when describing the impact of integrating the policy or strategy.
I would much rather focus on an EXTERNAL rate of return: what it's designed to DO for the client.
I use a Capital Equivalent Value comparing tax-exempt cash flow from the policy versus what would be required from a taxable policy.
In short: tax-exempt loan cash flow from a whole life policy will beat any taxable investment earning 10% each year for 10 years. (There's a lot of factors into this analysis, but I frequently do this calculation over a 10 year period.)
My own parents: They would have to earn 11.5%+ each year for 10 years in a taxable investment to equate what we're doing on a tax-exempt basis using life insurance.
For a contributory ESOP strategy, we figured out for one particular case, that you'd have to grow the business value (not just your sales) - the entire value of the business by 19.11% each and every year for five years and STILL find a buyer at that higher amount to equate what we could do using the tax code.
So yes, you can certainly do the IRR on the policy, but I wouldn't make that your value proposition when describing the impact of integrating the policy or strategy.
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