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Insurance Abstract
A method and computer program for evaluating the sustainability
of a permanent life insurance policy involves helping a user choose
a type of insurance policy that is appropriate by asking the user
a series of questions relating to the person's risk and management
preferences. A confidence factor is determined for an insurance
policy's funding premium, wherein the confidence factor indicates
a probability that the policy will sustain until a user-selected
age, such as the age of one hundred. The confidence factor is determined
by applying parameters of the user's policy to one thousand trial
illustrations developed using performance information from actual
portfolios over the last forty years, and reporting a percentage
of the trial illustrations that sustained through age one hundred.
If the confidence factor is unacceptably low, the user adjusts the
premium and/or an investment allocation scheme to generate a new
confidence factor. The confidence factor can be generated for a
new policy or for an in-force policy.
Insurance Claims
1. A method of assessing the sustainability of a permanent life
insurance policy, the method comprising the steps of: (a) creating
a benchmark policy using policy parameters from a plurality of similar
insurance policies, wherein the policy parameters include policy
expenses and fees; (b) generating a plurality of trial illustrations
using parameters of the benchmark policy, a user-specified premium
amount, and performance information from a plurality of actual investment
portfolios; and (c) calculating a percentage of the trial illustrations
that sustain through a pre-determined period of time.
2. The method as set forth in claim 1, wherein step (a) further
comprises the steps of: (a1) creating a policy database including
policy parameters from a plurality of insurance policies currently
available on the market; and (a2) creating the benchmark policy
by averaging policy parameters of a plurality of insurance policies
from the policy database presenting similar risk characteristics
as a user-specified investment scheme.
3. The method as set forth in claim 1, wherein step (b) further
comprises the step of: (b1) generating from three hundred to one
thousand trial illustrations using investment performance randomly
generated from a model investment portfolio chosen by the user,
based on the most recent forty-year (480 month) period.
4. The method as set forth in claim 3, wherein step (b) further
comprises the step of: (b2) generating a series of randomly selected
investment returns to build a hypothetical account value for each
trial illustration.
5. The method as set forth in claim 1, wherein step (b) further
comprises the step of: (b3) generating the plurality of trial illustrations
using investment return information from a plurality of randomly-selected
actual investment portfolios presenting similar risk characteristics
as a user-specified investment scheme.
6. The method as set forth in claim 1, wherein step (b) further
comprises the step of: (b4) generating the performance information
by creating randomly undulating interest rates according to actual
undulation patterns of one or more actual interest rates.
7. The method as set forth in claim 6, further comprising the step
of: (d) enabling a user to determine a starting point of the undulating
interest rates.
8. The method as set forth in claim 1, further comprising the step
of: (e) generating a second plurality of trial illustrations using
a second user-specified premium amount if the percentage of trial
illustrations that sustain through the pre-determined period of
time is unacceptable to the user.
9. The method as set forth in claim 1, further comprising the steps
of: (f) creating a second benchmark policy by averaging policy parameters
of a plurality of insurance policies that present risk characteristics
similar to a user-specified investment scheme; and (g) generating
a second plurality of trial illustrations using parameters of the
second benchmark policy, a user-specified premium amount, and performance
information from a second plurality of randomly-selected actual
portfolios presenting risk characteristics similar to the user-specified
investment scheme, and calculating a percentage of the trial returns
that sustain through an anticipated life of the policy.
10. The method as set forth in claim 9, step (f) further comprising
the step of: (f1) selecting the user-specified investment scheme
such that the second benchmark policy presents greater risk than
the first benchmark policy.
11. The method as set forth in claim 10, step (f) further comprising
the step of: (f2) performing step (f1) if a user is willing to accept
a lower percentage of trial runs that sustain through the pre-determined
period of time.
12. The method as set forth in claim 9, step (f) further comprising
the step of: (f3) selecting the user-specified investment scheme
such that the second benchmark policy presents lower risk than the
first benchmark policy.
13. The method as set forth in claim 12, step (f) further comprising
the step of: (f4) performing step (f3) if the percentage of trial
returns that sustain through the pre-determined period of time is
unacceptably high to the user.
14. The method as set forth in claim 1, wherein step (c) further
comprises the step of: (c1) calculating the percentage of trial
illustrations that sustain through the predetermined period of time
by periodically adding a premium amount and an investment income
amount to each trial illustration, periodically debiting a cost
of insurance amount and an expense amount from each trial illustration,
and determining a percentage of trial illustrations with positive
balances throughout the predetermined period of time.
15. The method as set forth in claim 1, further comprising the
steps of: (h) creating a plurality of model policy sub-account investment
portfolios with varying degrees of risk; (i) receiving risk preference
information from a user; (j) assigning the user a sub-account investment
portfolio that most closely corresponds to the person's risk preference
information; and (k) generating the performance information from
the sub-account investment portfolio assigned to the user.
16. The method as set forth in claim 15, step (h) further comprising
the steps of: (h1) creating a first model investment sub-account
portfolio including only data reflecting the monthly values of a
portfolio of large-capitalization stocks in the United States over
at least a forty-year period; (h2) creating a second model investment
sub-account portfolio comprising 80% data reflecting the monthly
values of a portfolio of large-capitalization stocks in the United
States over at least a forty-year period and 20% data reflecting
a blend of historic rates of medium- and long-term U.S. Treasury
Notes and Bonds; (h3) creating a third model investment sub-account
portfolio comprising 60% data reflecting the monthly values of a
portfolio of large-capitalization stocks in the United States over
at least a forty-year period and 40% data reflecting a blend of
historic rates of medium- and long-term U.S. Treasury Notes and
Bonds; (h4) creating a fourth model investment sub-account portfolio
comprising 40% data reflecting the monthly values of a portfolio
of large-capitalization stocks in the United States over at least
a forty-year period and 60% data reflecting a blend of historic
rates of medium- and long-term U.S. Treasury Notes and Bonds; and
(h5) creating a fifth model investment sub-account portfolio comprising
20% data reflecting the monthly values of a portfolio of large-capitalization
stocks in the United States over at least a forty-year period and
80% data reflecting a blend of historic rates of medium- and long-term
U.S. Treasury Notes and Bonds.
17. The method as set forth in claim 1, further comprising the
step of: (l) indicating a temporal distribution of trial illustrations
that do not sustain through the pre-determined period of time.
18. The method as set forth in claim 1, further comprising the
step of: (m) modifying the performance information so that returns
are reduced by 50 to 300 basis points and generating the plurality
of trial policies based on the modified performance information.
19. The method as set forth in claim 1, further comprising the
step of: (n) enabling a user to select the pre-determined period
of time.
20. A method of assessing the sustainability of a proposed permanent
life insurance policy, the method comprising the steps of: (a) determining
a user-specified investment allocation scheme; (b) creating a benchmark
policy by averaging policy parameters from a plurality of insurance
policies that present a risk similar to the user-specified investment
allocation scheme, wherein the policy parameters include policy
expenses; (c) generating a plurality of trial illustrations using
parameters of the benchmark policy, a user-specified premium amount,
and hypothetical performance information from forty-year random
historical investment return data in up to one thousand trial illustrations,
and calculating a percentage of the trial illustrations that sustain
through a pre-determined period of time by periodically adding a
premium amount and an investment income amount to each trial illustration
and periodically debiting a cost of insurance amount and an expense
amount from each trial illustration; (d) determining a first percentage
of trial illustrations with positive balances throughout the predetermined
period of time; and (e) determining a premium amount corresponding
to a user-specified alternative percentage of trial illustrations
with positive balances throughout the predetermined period of time
if the first percentage is unacceptable to the user.
21. The method as set forth in claim 20, further comprising the
steps of: (f) creating a second benchmark policy by averaging policy
parameters of a plurality of insurance policies that present risk
characteristics similar to a second user-specified investment scheme;
and (g) generating a second plurality of trial illustrations using
parameters of the second benchmark policy, a user-specified premium
amount, and performance information from a plurality of randomly-selected
actual portfolios, and calculating a percentage of the trial returns
that sustain through an anticipated life of the policy.
22. A method of assessing the sustainability of an in-force permanent
life insurance policy, the method comprising the steps of: (a) determining
an asset value and an investment allocation scheme of an in-force
permanent life insurance policy; (b) generating a plurality of trial
illustrations using expense and premium information from the in-force
policy, the asset value of the in-force policy, and performance
information from a plurality of actual investment portfolios presenting
investment allocation schemes similar to that of the in-force policy;
and (c) calculating a percentage of the trial illustrations that
sustain through a pre-determined period of time.
23. The method as set forth in claim 22, further comprising the
step of: (d) determining a premium amount corresponding to a user-specified
alternative percentage of trial illustrations that sustain through
the. predetermined period of time if the first percentage is unacceptable
to the user.
24. The method as set forth in claim 22, further comprising the
step of: (e) generating a second plurality of trial returns using
a user-specified premium amount that is different than the premium
amount of the in-force policy if the percentage of trial illustrations
that sustain through the a pre-determined period of time is unacceptable
to a user.
25. The method as set forth in claim 22, further comprising the
steps of: (f) creating a benchmark policy by averaging policy parameters
of a plurality of insurance policies that present risk characteristics
similar to a user-specified investment scheme; and (g) generating
a second plurality of trial illustrations using parameters of the
benchmark policy, a user-specified premium amount, and performance
information from a plurality of randomly-selected actual portfolios,
and calculating a second percentage of the trial returns that sustain
through the pre-determined period of time.
26. The method as set forth in claim 25, further comprising the
step of: (h) selecting the user-specified investment scheme such
that the second benchmark policy presents greater risk than the
first benchmark policy.
27. The method as set forth in claim 26, further comprising the
step of: (i) performing step (j) if a user is willing to accept
a lower percentage of trial runs that sustain through the a pre-determined
period of time.
28. The method as set forth in claim 25, further comprising the
step of: selecting the user-specified investment scheme such that
the second benchmark policy presents lower risk than the in-force
policy.
29. The method as set forth in claim 28, further comprising the
step of: (k) performing step (i) if the percentage of trial returns
that sustain through the pre-determined period of time is unacceptably
high to the user.
30. The method as set forth in claim 22, further comprising the
step of: (b1) in generating the plurality of trial illustrations,
increasing the cost of insurance according to an age of the in-force
policy.
31. The method as set forth in claim 22, further comprising the
step of: (b2) in generating the plurality of trial illustrations,
increasing the cost of insurance according to an age of the policy
and an increased concentration of risk due to assumed adverse selection.
32. The method as set forth in claim 31, wherein adverse selection
occurs when policy holders willingly terminate a first policy in
favor of a newly-issued contract, and wherein policy lapses result
in an increased concentration of adverse risk due to an increase
concentration of policy holders with unfavorable health conditions.
33. The method as set forth in claim 22, wherein step (c) further
comprises the step of: (c1) calculating the percentage of trial
illustrations that sustain through the predetermined period of time
by periodically adding a premium amount and an investment income
amount to each trial illustration, periodically debiting a cost
of insurance amount and an expense amount from each trial illustration,
and determining a percentage of trial illustrations with positive
balances throughout the predetermined period of time.
34. A method of assisting a customer in choosing an appropriate
premium amount for a permanent life insurance policy, the method
comprising the steps of: (a) receiving from the customer a preferred
policy premium amount; (b) determining a first confidence factor
indicating a likelihood that the life insurance policy will sustain
through a life of the policy for the preferred premium amount; (c)
receiving from the customer a second confidence factor if the first
confidence factor is not acceptable to the user; and (d) determining
a second policy premium amount corresponding to the second confidence
factor.
35. The method as set forth in claim 34, further comprising the
steps of: (e) receiving from the customer a projected cash withdrawal
amount to be withdrawn from the policy in the future; and (f) determining
a third confidence factor indicating a likelihood that the life
insurance policy will sustain through a life of the policy for the
second policy premium amount and the cash withdrawal amount.
36. The method as set forth in claim 35, further comprising the
steps of: (g) receiving from the customer a fourth confidence factor
if the third confidence factor is not acceptable to the user; and
(h) determining a second cash withdrawal amount corresponding to
the second confidence factor.
37. A computer-readable medium encoded with a computer program
for enabling a computer to assess the sustainability of a permanent
life insurance policy, the program comprising code segments for:
(a) determining an amount of insurance commensurate with a person's
needs and expectations; (b) determining a type of insurance policy
that is compatible with the person's risk and management preferences;
(c) determining a funding premium that meets the person's expectations;
(d) selecting a particular life insurance company from which to
purchase the life insurance policy; (e) determining an investment
strategy for a policy sub-account; and (f) determining whether the
person can fund the policy with sufficient cash premium to withdraw
or borrow funds to supplement retirement income.
38. The computer-readable medium as set forth in claim 37, further
comprising code segments for: (g) creating a benchmark policy by
averaging policy parameters from a plurality of similar insurance
policies, wherein the policy parameters include policy expenses;
and (h) generating a plurality of trial illustrations using the
parameters of the benchmark policy, a user-specified premium amount,
and performance information from a plurality of randomly-selected
actual portfolios, and calculating a percentage of the trial returns
that sustain through the pre-determined period of time.
39. The computer-readable medium as set forth in claim 38, further
comprising a code segment for: (h1) in generating the plurality
of trial illustrations, increasing the cost of insurance according
to the age of the policy from its inception.
40. The computer-readable medium as set forth in claim 38, further
comprising a code segment for: (h2) in generating the plurality
of trial illustrations, increasing the cost of insurance according
to an age of the policy and an increased concentration of risk due
to policy owners abandoning policies.
41. The computer-readable medium as set forth in claim 38, further
comprising code segments for: (i) generating a customizable report
that includes a graphic illustration, wherein the report relates
to a topic selected from the group consisting of the amount of insurance,
the type of insurance, funding premium, a particular life insurance
company and policy, the investment strategy for the sub-account,
and supplemental retirement income information.
42. The computer-readable medium as set forth in claim 38, further
comprising code segments for: (d1) receiving a plurality of criteria
the person uses to choose an insurance company; (d2) enabling the
person to indicate a degree of importance of each of the criteria;
and (d3) generating a report that contains one or more insurance
companies chosen according to the criteria and the degree of importance
of each of the criteria.
43. The computer-readable medium as set forth in claim 37, further
comprising a code segment for: (b1) determining a degree of control
the person desires to have over policy asset investment decisions
by determining an amount of investment experience of the person,
the person's desire to control how policy assets are invested, the
person's desire to protect policy assets from a failure of the company,
and a length of time the person intends to maintain the policy.
44. The computer-readable medium as set forth in claim 37, further
comprising a code segment for: (b2) determining the person's risk
preference by determining the person's preferences relating to preservation
and growth of the policy assets, investment volatility, asset growth
in relation to inflation, and maximum acceptable losses.
Insurance Description
BACKGROUND OF THE INVENTION
[0001] 1. Field of the Invention
[0002] The present invention relates to permanent life insurance
policy evaluation tools. More particularly, the invention involves
a method and computer program for evaluating the sustainability
of a Universal or Variable Universal Life insurance policy (and
the survivorship forms of these as described below), and enabling
a user to determine a type of policy and funding premium that generate
an acceptable likelihood that the insurance policy will sustain
through the life of the policy.
[0003] 2. Description of the Prior Art
[0004] Life insurance policies have historically had fixed pricing,
wherein if the policy owner paid the premium specified in the contract
of insurance, the coverage was guaranteed for the life of the insured.
Within the last twenty-five years, however, a new class of "indeterminate
premium" life insurance policies have become very popular,
although somewhat difficult for many consumers to understand. Rather
than the insurer guaranteeing its contract for a fixed price, the
sustainability risk is shifted to the policy owner in exchange for
the flexibility to pay whatever--and whenever--the policy owner
chooses. Thus, the policy owner has the responsibility to make certain
that enough premium is paid into the policy to maintain a positive
account balance. A positive account balance is maintained when the
premiums paid into the policy plus income generated by policy assets
are greater than insurance charges and expense charges debited from
the policy account.
[0005] Indeterminate life insurance policies are available in various
forms, including universal life (UL), variable universal life (VUL),
survivorship universal life (SUL), and survivorship variable universal
life (SVUL). With a universal life policy, a portion of the premiums
paid by the policy owner are invested by the insurance company and
generate income which is reflected in an interest credit added to
the policy by the insurance company. Premiums paid plus interest
credits accumulate as cash value of the policy. Cash value exists
to support the death benefit of the policy, but excess cash values
may be used, for example, to offset the higher cost of insurance
in the later years of the policy owner's life or as supplemental
retirement income. With a universal life insurance policy, the policy
owner has no control over how the cash value of the policy is invested,
but is typically guaranteed a minimum rate of return on the cash
value.
[0006] Variable universal life policies are similar in nature to
universal life policies, except that VUL policy owners control how
the assets of the policy are invested, and the cash value of the
policy is credited with the return or "income" generated
from the investments. Thus, VUL policies give policy owners greater
control over their policy but expose the policy owners to the risk
of earning a minimal return on their investment or even losing money.
SUL and SVUL polices are similar to UL and VUL policies, respectively,
except that SUL and SVUL policies provide permanent insurance protection
for two people, with the death benefit payable upon the death of
the last to die of the two insured individuals.
[0007] Computerized policy illustrations are often used by insurance
companies and their agents to help customers understand how indeterminate
life insurance policies work and to distinguish between what is
guaranteed and what is not guaranteed as the policy is credited
with interest or investment earnings and premium payments from the
policy owner and is debited for insurance and expense charges. U.S.
Pat. No. 5,956,691, for example, discloses a system for dynamically
illustrating the performance of an insurance policy wherein a user
can interactively change policy variables, such as interest rates
and premiums paid, and view the effect of each change on the performance
of the policy.
[0008] While most UL and SUL policies have minimum interest credits,
such as 3%, and all indeterminate premium policies typically have
a maximum schedule of insurance and expense charges specified in
the contract, insurance companies often market indeterminate life
insurance policies by projecting current assumptions in the policy
illustrations. In other words, the policy illustrations project
an expectation of crediting an interest rate higher than the guaranteed
minimum, and assessing insurance and expense charges that are less
than the guaranteed maximum. Insurance companies, however, have
wide latitude to change the interest credits (in UL policies) and
the cost of insurance charges based on the insurance company's claims,
investment returns, and profit margins, among other things. Consequently,
long-term projections reflect only the specific company's straight-line
assumptions based on current experience about the performance of
the insurance policy. It will be appreciated that the time horizon
for a young customer can be as long as one hundred years, wherein
many fluctuations in the policy parameters can and will occur and
errors in the policy illustrations can be compounded.
[0009] Unfortunately, such straight-line policy illustrations do
not give customers a realistic sense of how much premium to pay
in order to sustain the proposed insurance policy over long periods
of time during which interest credits or investment returns, as
well as insurance and expense charges, will frequently change. Because
customers do not consider the changes in these parameters when buying
the policies, they are susceptible to under-funding the policy,
which will ultimately cause the insurance policy to lapse prior
to the customer's death.
[0010] Accordingly, there is a need for an improved method of evaluating
a life insurance policy that does not suffer from the problems and
limitations of the prior art.
SUMMARY OF THE INVENTION
[0011] The present invention solves the above-described problems
and provides a distinct advance in the art of permanent life insurance
policy evaluation tools. More particularly, the present invention
involves a method and computer program for evaluating the sustainability
of a permanent life insurance policy, wherein the method and program
involve determining a likelihood that a particular life insurance
policy will sustain throughout a pre-determined time period for
a given premium amount.
[0012] In a first embodiment of the invention, the method comprises
a first step of creating a benchmark policy by averaging policy
parameters from a plurality of similar insurance policies, wherein
the policy parameters include numerous elements of policy expenses.
The method further comprises a second step of generating a plurality
of trial illustrations using parameters of the benchmark policy,
a user-specified premium amount, and performance information from
a plurality of randomly-generated investment returns based on historic
returns from the selected model portfolio, and calculating a percentage
of the trial illustrations that sustain through a pre-determined
period of time.
[0013] A second embodiment of the invention includes more user
interaction. According to the second embodiment, the method involves
the steps of determining a user-specified investment allocation
scheme and creating a benchmark policy by averaging policy parameters
from a plurality of insurance policies available on the market,
wherein the policy parameters include policy expenses.
[0014] A plurality of trial illustrations are generated using parameters
of the benchmark policy, a user-specified premium amount, and performance
information created by generating 300-1,000 trial illustrations,
each of which is based on randomly generated, historic investment
returns selected from over a forty-year period, and calculating
a percentage of the trial illustrations that sustain through a pre-determined
period of time. The percentage of trial illustrations that sustain
through a pre-determined period of time is calculated by periodically
adding a premium amount and an investment income amount to each
trial illustration, periodically debiting a cost of insurance amount
and an expense amount from each trial illustration, and determining
a percentage of trial illustrations with positive balances throughout
the predetermined period of time.
[0015] A second plurality of trial illustrations are generated
using a second user-specified premium amount if the percentage of
trial illustrations that sustain through the pre-determined period
of time is unacceptable to the user.
[0016] A third embodiment of the invention involves a method of
assessing the sustainability of an in-force permanent life insurance
policy. The method comprises the steps of determining an asset value
and an investment allocation scheme of an in-force permanent life
insurance policy, and generating a plurality of trial illustrations
using expense and premium information from the in-force policy,
the asset value of the in-force policy, and performance information
from a plurality of randomly-selected actual portfolios presenting
investment allocation schemes similar to that of the in-force policy.
A percentage of the trial illustrations that sustain through a pre-determined
period of time is calculated.
[0017] A fourth embodiment of the invention involves a computer-readable
medium encoded with a computer program for enabling a computer to
assess the sustainability of a permanent life insurance policy.
The computer program comprises code segments for determining an
amount of insurance commensurate with a person's needs and expectations,
and for determining a type of insurance policy that is compatible
with the person's risk and management preferences.
[0018] The computer program further comprises code segments for
determining a funding premium that meets the person's expectations,
selecting a particular life insurance company from which to purchase
the life insurance policy, determining an investment strategy for
a policy sub-account, and determining whether the person can fund
the policy with sufficient cash value to withdraw or borrow funds
to supplement retirement income.
[0019] These and other important aspects of the present invention
are described more fully in the detailed description below.
BRIEF DESCRIPTION OF THE DRAWING FIGURES
[0020] A preferred embodiment of the present invention is described
in detail below with reference to the attached drawing figures,
wherein:
[0021] FIG. 1 is a flowchart of steps involved in a method of evaluating
the sustainability of a permanent life insurance policy according
to principles of the invention;
[0022] FIG. 2 is a first portion of a computer-generated questionnaire
for determining an amount of life insurance that is commensurate
with a customer's needs, desires, and circumstances;
[0023] FIG. 3 is a second portion of the questionnaire of FIG.
2;
[0024] FIG. 4 is a third portion of the questionnaire of FIG. 2;
[0025] FIG. 5 is a first portion of a computer-generated report
based on information received from the questionnaire of FIGS. 2-4;
[0026] FIG. 6 is a second portion of the report of FIG. 5;
[0027] FIG. 7 is a third portion of the report of FIG. 5;
[0028] FIG. 8 is a first portion of a computer-generated questionnaire
for determining a level of risk with which the customer is most
comfortable;
[0029] FIG. 9 is a second portion of the questionnaire of FIG.
8;
[0030] FIG. 10 is a third portion of the questionnaire of FIG.
8;
[0031] FIG. 11 is a fourth portion of the questionnaire of FIG.
8;
[0032] FIG. 12 is a fifth portion of the questionnaire of FIG.
8;
[0033] FIG. 13 is a sixth portion of the questionnaire of FIG.
8;
[0034] FIG. 14 is a flowchart of steps involved in determining
a funding premium for the permanent insurance policy that meets
the customer's expectations;
[0035] FIG. 15 is a first portion of a computer-generated questionnaire
for assisting a user in choosing a life insurance company;
[0036] FIG. 16 is a second portion of the questionnaire of FIG.
15;
[0037] FIG. 17 is a third portion of the questionnaire of the FIG.
15;
[0038] FIG. 18 is a fourth portion of the questionnaire of FIG.
15;
[0039] FIG. 19 is the fourth portion of the questionnaire of FIG.
15 reflecting various selections indicated by a user;
[0040] FIG. 20 is a computer-generated report based on information
received from the questionnaire of FIGS. 15-19; and
[0041] FIG. 21 is a computer operable to implement a computer program
embodying principals of the present invention.
DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS
[0042] A flowchart of steps involved in a method of evaluating
the sustainability of a permanent life insurance policy according
to principals of the present invention is illustrated in FIG. 1.
The method of the present invention is especially well-suited for
being implemented on a computer or computer network, such as the
computer 2 illustrated in FIG. 21 that includes a keyboard 4, a
processor console 6, and a display 8. The method of the present
invention will thus be generally described herein as a computer
program. It will be appreciated, however, that the principals of
the present invention are useful independently of a particular implementation,
and that one or more of the steps described herein may be implemented
without the assistance of a computer.
[0043] The present invention can be implemented in hardware, software,
firmware, or a combination thereof. In a preferred embodiment, however,
the invention is implemented with a computer program. The computer
program and equipment described herein are merely examples of a
program and equipment that may be used. to implement the present
invention and may be replaced with other software and computer equipment
without departing from the scope of the present invention.
[0044] The computer program of the present invention is stored
in or on computer-readable medium residing on or accessible by a
host computer 2 for instructing the host computer 2 to implement
the method of the present invention as described herein. The computer
program preferably comprises an ordered listing of executable instructions
for implementing logical functions in the host computer and other
computing devices coupled with the host computer. The computer program
can be embodied in any computer-readable medium for use by or in
connection with an instruction execution system, apparatus, or device,
such as a computer-based system, processor-containing system, or
other system that can fetch the instructions from the instruction
execution system, apparatus, or device, and execute the instructions.
[0045] The ordered listing of executable instructions comprising
the computer program of the present invention will hereinafter be
referred to simply as "the program." It will be understood
by-one of ordinary skill in the art that the program may comprise
a single list of executable instructions or two or more separate
lists, and may be stored on a single computer-readable medium or
multiple distinct media.
[0046] In the context of this application, a "computer-readable
medium" can be any means that can contain, store, communicate,
propagate or transport the program for use by or in connection with
the instruction execution system, apparatus, or device. The computer-readable
medium can be, for example, but not limited to, an electronic, magnetic,
optical, electromagnetic, infrared, or semi-conductor system, apparatus,
device, or propagation medium. More specific, although not inclusive,
examples of the computer-readable medium would include the following:
an electrical connection having one or more wires, a portable computer
diskette, a random access memory (RAM), a read-only memory (ROM),
an erasable, programmable, read-only memory (EPROM or Flash memory),
an optical fiber, and a portable compact disk read-only memory (CDROM).
The computer-readable medium could even be paper or another suitable
medium upon which the program is printed, as the program can be
electronically captured, via for instance, optical scanning of the
paper or other medium, then compiled, interpreted, or otherwise
processed in a suitable manner, if necessary, and then stored in
a computer memory.
[0047] The flow charts of FIGS. 1 and 14 show the functionality
and operation of a preferred implementation of the present invention
in more detail. In this regard, some of the blocks of the flow charts
may represent a module segment or portion of code of the computer
program of the present invention which comprises one or more executable
instructions for implementing the specified logical function or
functions. In some alternative implementations, the functions noted
in the various blocks may occur out of the order depicted in FIGS.
1 and 14. For example, two blocks shown in succession in FIG. 1
may in fact be executed substantially concurrently, or the blocks
may sometimes be executed in the reverse order depending upon the
functionality involved.
[0048] Referring initially to FIG. 1, an amount of life insurance
that is commensurate with a customer's needs, desires, and circumstances
is first determined, as depicted in block 10. More specifically,
the program assists a user in determining a proper amount of life
insurance by prompting the user to submit information relating to
the customer's needs, desires, and circumstances and using the information
to determine an appropriate amount of insurance. The "customer"
is a potential purchaser of an insurance policy while the "user"
is a person interacting with the program. Thus, the user may be
the customer or may be a salesperson who is helping the customer
choose an insurance policy.
[0049] FIGS. 2-4 illustrate an exemplary online questionnaire that
the program presents to the user to determine the appropriate amount
of life insurance. Referring initially to FIG. 2, instructions 12
direct the user to identify financial needs the customer will have
in the event of premature death and the length of time it is anticipated
each need will exist. A first question 14 asks the user to submit
information relating to ongoing family expenses that would need
to be paid for in the event a wage earner dies prematurely. The
user has the option of choosing either or both spouses and designating
a monthly amount necessary to cover the monthly expenses, a number
of years the monthly amount should be provided, whether the monthly
amount should increase each year with inflation, and when that need
will expire.
[0050] A second question 16 asks the user to submit information
relating to anticipated expenses relating to higher education for
each of multiple children of a first spouse and a second spouse.
The illustrated questions solicit higher education expense information
including an anticipated amount per year per child, in what year
that expense will begin to be incurred, and for how many years it
is anticipated it will last. In the illustrated questionnaire children
are listed under each of a first spouse and a second spouse, thereby
enabling the user to account for obligations arising from a previous
marriage.
[0051] A third question 18 asks the user to submit information
relating to debt that would need to be satisfied upon the premature
death of a wage earner. The third question 18 solicits an amount
of long-term debt as well as a number of years associated with the
debt. The user can thus submit yearly payment information based
on a current yearly payment schedule for one or more loan obligations.
Alternatively, the customer may desire to pay off all debts simultaneously
upon the premature death of a wage earner and could submit a lump
sum to be paid off in one year.
[0052] A fourth question 20 relates to the customer's preferences
for management of the insurance policy if the customer survives
the various needs presented in the previous questions. If the customer
survives higher education expenses by, for example, living until
all children have graduated from college, the portion of the policy
designated for higher education may be otherwise directed. The customer
may desire to receive that money back in monthly installments beginning
at a certain age for a certain number of years.
[0053] A fifth question 22 asks the user to determine whether the
customer desires to account for a specified amount to provide cash
for the payment of taxes and other costs typically incurred at death.
If the taxes and other costs are not accounted for, they may reduce
the value of the estate of the user and therefore reduce the portion
of the estate passing to the heirs or devisees of the deceased.
A sixth question 24 relates to the customer's desires to make charitable
bequests.
[0054] While certain specific questions have been described and
illustrated in the exemplary questionnaire, one of ordinary skill
in the art will recognize that these are illustrative only and that
it is within the scope of the present invention to modify or add
to the illustrated questions according to the circumstances of a
particular insured or group of customer.
[0055] After receiving the information from the user via the questionnaire
described above, the program generates a report of the information
for the customer's review and verification. An exemplary report
based on the information submitted by the user is illustrated in
FIGS. 5 and 6, wherein the report may be in one or more of various
forms including paper form and electronic form such as e-mail, HTML,
or PDF. A first section 26 lists several of the most common reasons
people purchase life insurance, and further indicates which of those
reasons are reflected in the information submitted by the user.
In the example illustrated in FIG. 5, the user's choices reflect
that the insured desires to purchase life insurance for the purpose
of providing for family expenses, providing for children's education,
and repaying debt in the event of a premature death. The first section
26 is helpful in enabling the customer to see an overview of the
types of benefits his or her choices have focused on, as well as
to confirm that those choices reflect his or her true desires.
[0056] Sections 28, 30, and 32 illustrate the customer's particular
allocation of policy payments. Section 28 details, among other things,
an amount of monthly income that the insurance should replace in
the event of premature death; a period of time over which the monthly
income should be paid out; and an annual percentage of increase
for inflation. Section 30 details provisions for children's education
while section 32 details provisions for debts to pay off. Section
34 provides a summary of all dollar amounts with a total that represents
the insured's total need for life insurance.
[0057] The exemplary report described above and set forth in FIGS.
5 and 6 are based on a scenario in which the customer elects not
to allow the policy to provide a cash flow back to the policy owner
if one or more benefits have not been paid, to provide for the payment
of estate taxes and other liquidity at death, and to make charitable
bequests (see FIG. 5). Exemplary sections 36,38,40 of the report
corresponding to those choices are illustrated in FIG. 7.
[0058] Once the appropriate amount of life insurance has been determined,
a type of life insurance policy compatible with risk and management
preferences of the customer is determined, as depicted in block
42 of FIG. 1. More particularly, the program assists the user in
determining a degree of control the customer desires over policy
sub-accounts, and a level of risk with which the customer is comfortable.
Policy sub-accounts are the investment accounts underlying the insurance
policy that generate income (and, in some cases, losses) that are
applied to the policy. The degree of control desired by the customer
is ascertained primarily to determine whether the customer prefers
to manage the sub-accounts himself or herself (VUL/SVUL), or prefers
that the insurance company manage the investments underlying the
policy (UL/SUL).
[0059] The degree of control the customer needs or desires is determined
by presenting one or more questions to the user via a software interface
(not shown). The questions may ascertain the customer's skill level
and experience in making investment decisions; the customer's desire
to exercise control over the investment of the sub-account; and
the customer's desire to insulate the sub-account from the success/failure
of the insurance company. Furthermore, the questions may determine
a length of time the customer intends the policy to be in force--which
will typically depend on the customer's age. For each type of insurance,
for example, there is a policy recommendation based on the need
being for fifteen years or less or more than fifteen years. The
questions presented by the software interface may be similar in
form and layout to the questions illustrated in FIGS. 2-4.
[0060] Based on the customer's answers to these questions, the
program determines that the customer either prefers a policy with
a customer-managed sub-account (VUL or SVUL) or a policy with a
company-managed account (UL or SUL). If the customer indicates that
he or she has a high level of investment experience and a strong
desire to exercise control over the sub-account assets, for example,
the program matches the customer with a VUL or SVUL insurance policy.
[0061] To determine a level of risk the customer is comfortable
with, the program prompts the user to answer a series of questions
intended to determine the customer's comfort level with various
portfolios, each presenting varying degrees of risk. A first set
of questions is illustrated in FIG. 8, wherein the user can indicate
which of the scenarios is most important by clicking on an indicator
to the left of the scenario. If preserving principal by minimizing
risk is most important to the customer, the "Preservation of
principal is paramount" option 44 is chosen. If fast growth
with greater risk is most important to the customer, the "Substantial
growth over time is important to me" option 46 is chosen. Thus,
option 46 presents a greater degree of risk than option 44, and
the options therebetween represent varying degrees of risk.
[0062] FIG. 9 illustrates a question similar to that of FIG. 8,
but that is worded somewhat differently. The question of FIG. 9
focuses on investment volatility, and determines the customer's
comfort level with various degrees of volatility by prompting the
user to choose one of four options ranging from "As little
as possible" 48 to "A considerable amount" 50. FIG.
10 illustrates a question that relates to the customer's preferences
in light of the potential effects of inflation. The user can choose
to protect the investments at the expense of not keeping up with
inflation by choosing the option entitled "My investments should
be safe" 52, or may alternatively choose to grow the investments
at the expense of greater risk by choosing the option entitled "My
investments should grow much faster than inflation" 54.
[0063] A question prompting a user to choose maximum loss preferences
is illustrated in FIG. 11, wherein a user can choose a minimal loss
option 56, a maximum loss option 58, or one of a plurality of loss
options therebetween presenting various ranges of losses. More detailed
questions are illustrated in FIGS. 12 and 13, wherein the user is
presented with questions that reflect the nature of various sub-account
investments. The question of FIG. 12 prompts the user to select
a portfolio based on maximum annual return versus minimum annual
return, wherein portfolio A is relatively conservative with a maximum
possible annual return of 14.7% and a minimum possible annual return
of 0%, and portfolio E is very aggressive with a maximum possible
annual return of 127.6% and a minimum possible annual return of
-53.6%. Portfolios B, C, and D are increasingly more aggressive
than portfolio A but are less aggressive than portfolio E. FIG.
12 also illustrates a graphical representation of average annual
total returns of each of the portfolios, wherein the graphical representation
may be presented via the software interface to help inform the customer's
decision.
[0064] The question of FIG. 13 prompts the user to select one of
five investment allocation schemes, wherein a first allocation scheme
60 places all of the money in a low-return, low risk investment,
and a second allocation scheme 62 places all of the money in a high-risk,
high-return investment. A plurality of other investment allocation
schemes divide the sub-account assets between the low return, low
risk investment and the high return, high risk investment in varying
degrees. Furthermore, a bar graph provides a visual comparison of
the average annual returns and potential loss of two or more of
the investment allocation schemes.
[0065] Based on the user's responses to the various risk preference
questions, the program assigns the customer's risk tolerance to
the closest one of five model investment portfolios: aggressive
growth, growth, balanced, modest conservative, and conservative.
The aggressive growth portfolio consists of data reflecting the
monthly values of a portfolio of large-capitalization stocks since
the early 1900s. The growth model portfolio is a customized historical
blend (with annual reallocation) of 80% of the aggressive growth
portfolio data and 20% of a blend of historic rates of medium- and
long-term U.S. Treasury Notes and Bonds. The balanced model portfolio
is a customized historical blend (with annual reallocation) of 60%
of the aggressive growth portfolio data and 40% of the blend of
historic rates of medium- and long-term U.S. Treasury Notes and
Bonds. The modest conservative model portfolio is a customized historical
blend (with annual reallocation) of 40% of the aggressive growth
portfolio data and 60% of the blend of historic rates of medium-
and long-term U.S. Treasury Notes and Bonds. The conservative model
portfolio is a customized historical blend (with annual reallocation)
of 20% of the aggressive growth portfolio data and 80% of the blend
of historic rates of medium- and long-term U.S. Treasury Notes and
Bonds.
[0066] Once a type of insurance policy is determined that is compatible
with the customer's management and risk preferences, a funding premium
is determined that meets the customer's expectations, as depicted
in block 64 of FIG. 1. In determining the premium funding rate,
a policy database is first established from which a benchmark policy
can be derived that represents a blend of several insurance policies
available on the market. The policy database generally is representative
of the most common insurance policies from several insurance companies,
and typically includes sufficient policy data to base any given
benchmark policy on information from at least thirty policies currently
available in the insurance market.
[0067] To develop the policy database, a volume of sales is determined
from each of four classes of life insurance policies: universal
life (UL), survivorship universal life (SUL), variable universal
life (VUL), and survivorship variable universal life (SVUL). The
volume of sales determination is based on raw insurance sales data
for a given period, such as the prior year, wherein insurance companies
and policies are chosen so that approximately 80% of the market
share is represented in a list of identified carriers and products.
Typically twenty to forty insurance companies will be represented.
Policy parameters are gathered for each of the insurance carriers
and products in order to create a database of composite data relating
to various insurance expenses, including costs of insurance, premium
loads, various elements of expense, Mortality and Expense, fund
fees (for VULs), and other pricing elements.
[0068] The composite database is then refined using actuarial processes
to eliminate extremes along a bell curve of results, such as statistical
outliers. The resulting policy database is used to establish a benchmark
policy for a particular type of policy chosen by the customer. The
benchmark policy created from the policy database serves as a basis
for illustrations and comparisons, as well as a starting point for
policy performance analyses. The benchmark may be created, for example,
by averaging all of the factors such as costs of insurance, premium
loads, etc. from parameters of policies presenting similar risk
characteristics. Each benchmark represents a blend of parameters
from an array of currently-available policies, so particular new
and in-force policies can be compared to the benchmark policy to
determine, for example, extreme variances in policy expenses such
as cost of insurance. The benchmark is updated periodically using
data from currently sold policies, and is preferably updated annually.
[0069] Referring now to FIG. 14, a flowchart of steps involved
in determining a funding premium that meets the expectations of
the customer is illustrated. The program first factors the account
value's asset allocation over the life of the policy into the analysis
of the policy, as depicted in block 66 of FIG. 14. If the user has
chosen to allocate sub-account assets in a manner similar to that
of the growth model portfolio, for example, the program assigns
an aggressive annual growth and high risk to 80% of the sub-account
assets, and assigns a modest annual growth and low risk to 20% of
the sub-account assets. The program also factors any changes in
the asset allocation over the course of the policy. The user may
choose, for example, to invest more aggressively during the first
fifteen years of the policy and reallocate the policy assets thereafter
according to a more conservative allocation.
[0070] The program then accounts for historic investment returns
according to the asset allocation of the holdings, as depicted in
block 68. In this step, the program applies actual historic return
data to the asset allocation scheme to determine how much the principal
is expected to grow. Regardless of the expected rate of return,
the program increases the principal according to randomly generated
interest rate patterns (UL/SUL) or randomly generated investment
returns (VUL/SVUL).
[0071] The program then accounts for cost of insurance changes
over the life of the policy, as depicted in block 70. While the
insurance charge rate (expressed as monthly cost per 1,000 times
the net amount of risk) will rise as the insured ages, the monthly
payment required to satisfy the mathematical result of RATE times
NET AMOUNT AT RISK will typically increase unless there is sufficient
cash value to steadily reduce the net amount at risk. Consequently,
the monthly insurance charge assessed in the policy will increase.
[0072] In an alternative approach to accounting for cost of insurance
charges over the life of the policy, the program may factor changes
in the cost of insurance associated with the trend of policy holders
replacing older insurance policies with new insurance policies.
As insurance policies get older, some policy holders will replace
their older policy with a new policy to save money. The new policy
may appear less expensive to the customer because the customer's
health will have been newly-evaluated and thus the insurance company
can illustrate a lower premium commensurate with the lower risk.
As older policies are replaced with new policies, the insurance
company may charge owners of the old policies increasingly higher
premiums to account for the higher concentration of risk in that
group of policies.
[0073] The program may account for this trend by automatically
applying additional expense charges--beyond anticipated increases
in the cost of insurance due to the traditional factors discussed
above--to accounts that are more than a few years old to account
for the increased cost of insurance.
[0074] The program then generates a confidence factor indicative
of a probability of success that a policy will be sustained, as
depicted in block 72. While the historic return information provides
an indication of how much return may be generated by the policy
sub-accounts, it does not indicate a probability that the investment
will actually produce the average return. Because the premium required
to maintain the policy depends substantially on the total account
value, the timing of each monthly return is as important as what
the average overall return may ultimately be. To address the likelihood
of a sub-account generating sufficient income to maintain a policy
for a pre-determined amount of time at a given premium level, the
program generates the confidence factor. The method the program
uses to generate the confidence factor depends on the type of policy.
In particular, the method depends on whether the policy is a VUL/SVUL
policy or a UL/SUL policy.
[0075] For VUL/SVUL policies, the program randomly generates investment
portfolio returns from those that have actually occurred in the
U.S. in the last 40 years. The randomly generated rates of return
are used to produce from 300 to 1,000 trial illustration projections
based on a user-specified premium, and tallies the number of trial
illustrations that sustain to age 100 and those that don't. The
percentage of trial illustrations that sustain-relative to the total
number of trials is the confidence factor, or probability of success.
For example, if 900 of 1,000 trial illustrations sustain to age
100, the confidence factor is 90%. In other words, 90% of similar
investment strategies have been successful, or sustained until the
customer reached the age of 100.
[0076] If the customer is not comfortable with the confidence factor
generated by a particular premium, the premium may be adjusted.
If the confidence factor for a premium of five hundred dollars is
60%, for example, the customer may choose to view the effect of
increasing the premium. Increasing the premium to six hundred and
fifty dollars may improve the confidence factor to 80%, which the
customer may find satisfactory. Alternatively, the customer may
specify a confidence factor with which he or she is comfortable
and the program will calculate the approximate premium that will
meet the specified confidence factor.
[0077] The program generates a confidence factor for UL and SUL
policies differently than it does for VUL or SVUL policies. Traditional
policy illustrations for UL and SUL policies are calculated with
an interest rate that does not exceed the insurance company's current
crediting rate. The company's crediting rate is related to the insurer's
net return on portfolio earnings, however, and therefore generally
changes, or undulates, as interest rates change in the general economy.
Policy illustrations thus do not illustrate fluctuations in interest
rates, which may be a source of error in the long-term projections.
[0078] To more accurately illustrate how a UL or SUL policy may
perform under rising and falling interest rates, the program randomly
undulates long-term interest rates according to actual undulation
patterns that have occurred in the United States over the last forty
years. These randomly undulating interest rate patterns are used
to produce from 300 to 1,000 trial illustrations based on a specified
premium. As in the method used with VUL and SVUL polices, the program
tallies the number that sustain to age 100 and those that don't.
The percentage of "sustains" relative to the total is
the confidence factor.
[0079] The interest rate data used to determine long-term interest
rate undulation patterns may be determined by projecting the entire
treasury yield curve (from one to thirty years), then selecting
a representative return from (currently) the 10-year U.S. Treasury
Bond to derive a benchmark policy crediting rate. During different
phases of an economic cycle, different duration bonds may be utilized
to generate a benchmark rate. One skilled in the art, however, will
recognize that data from various sources may be used to determine
long-term interest rate undulation trends.
[0080] The program gives customers various options in determining
the confidence factor. The customer has the option, for example,
of setting the starting point of the undulation according to either
the current credit rating of the policy or based on the random undulations.
Furthermore, the program generates a report relating to the confidence
factor that includes a probability of sustaining to a particular
age of the insured, such as one hundred; an average death benefit
of the policies that did sustain to that age; average death benefit
of policies that sustained to another age, such as life expectancy;
and an earliest age of likely lapse.
[0081] The user then indicates to the program whether the confidence
factor is unacceptably low, as depicted in block 74. If the confidence
factor is not unacceptably low, the process of determining a funding
premium is done. Alternatively, if the confidence factor is not
unacceptably low, the customer may desire to reduce the funding
premium further to minimize premium payments.
[0082] If the confidence factor is unacceptably low, the program
prompts the user to indicate an acceptable confidence factor, as
depicted in block 76. The program then calculates the approximate
premium corresponding to the acceptable confidence factor as depicted
in block 78 and the process is done. If the confidence factor is
unacceptably low, the program may also provide more detailed information
about the trial illustrations. For example, the program may indicate
a temporal distribution of the trial illustrations that do not sustain
for the life of the policy to enable the user to determine when
the earliest lapse occurs.
[0083] The program further enables the user to selectively modify
the performance of the underlying investments of the trial illustrations
and the life expectancy associated with the trial illustrations.
The user may desire, for example, to decrement the historic data
points by fifty to three hundred basis points in order to create
more conservative trial illustrations if the user anticipates lower
than historic returns due to an unfavorable market environment.
[0084] Once the funding premium has been determined, a particular
life insurance company from which to purchase the policy is selected,
as depicted in block 82 of FIG. 1. More particularly, the program
assists the user in selecting a particular life insurance company
from which to purchase the policy based on a number of criteria,
at least a portion of which are specified by the user. FIGS. 15-20
illustrate portions of an exemplary questionnaire for taking the
user through a process of choosing an insurance company. FIG. 15
illustrates an input form 84 presented to the user to begin the
process, wherein the user is prompted to indicate fifteen or more
criteria for use in selecting an insurance company, wherein at least
a portion of the criteria are specified by the user. The user may
indicate one or more criteria from a list of criteria, or may submit
criteria that do not appear on the list.
[0085] A form 86 illustrated in FIG. 16 enables a user to submit
a name of a particular insurance company in a text field 88 and
then rank the company from "1" to "5" in each
of the criteria chosen in the form 84 of FIG. 15. The user fills
out form 86 for each of a plurality of insurance companies. A form
90 illustrated in FIG. 17 enables the user to determine how many
companies that qualify for each search should be revealed in a recommendations
report. A form 92 illustrated in FIG. 18 enables the user to indicate
which of the criteria are most important to the customer, wherein
FIG. 19 illustrates the same form 92 with various criteria selected.
An exemplary recommendations report is illustrated in FIG. 20, wherein
a number of insurance companies and particular products are recommended.
[0086] Once a particular life insurance company and particular
product have been selected, an investment plan for the sub-account
assets is developed if the customer has chosen an investment-oriented
policy such as a VUL or SVUL policy, as depicted in block 94 of
FIG. 1. Developing the investment plan involves choosing from amongst
an array of investment sub-accounts in a range of asset classes.
If the user has chosen an investment scheme comprising a combination
of aggressive and conservative investments, for example, the program
identifies various aggressive investment options and various conservative
investment options.
[0087] The program also assists the user in determining whether
the customer can fund the policy with enough cash value to withdraw
or borrow funds to supplement retirement income, as depicted in
block 96 of FIG. 1. This step of the program projects availability
of funds for use as supplemental retirement funds based on the projected
premiums and expected future cash flow. Cash values can be withdrawn
with no income tax up to the total amount of money put into the
policy (tax basis). If additional cash values are to be removed
from the policy, policy loans can be taken. Under current law, no
taxes are assessed on policy loans (even when they exceed tax basis)
as long as the policy remains in force until death. If the policy
lapses before death, all borrowed funds in excess of the tax basis
will become taxable as ordinary income in the year of the lapse.
[0088] To help prevent such lapses, the program illustrates supplemental
retirement funding based on realistic assumptions. The program calculates
a sufficient funding premium consistent with the number of years
it will be paid (typically not beyond the retirement year) and calculates
a potential annual withdrawal while keeping the policy in force.
The program generates a confidence factor similar to the confidence
factor described above, wherein the customer may choose to analyze
the effect of increased premium payments if the confidence factor
is unacceptably low. The program determines the supplemental retirement
funding confidence factor in a manner substantially similar to that
of the sustainability confidence factor described above, wherein
the program generates a plurality of trial illustrations and reports
a percentage of the trial illustrations that met the customer's
expectations.
[0089] While the program has been described as assisting a user
in assessing a new insurance policy, the program can also assist
the user in determining whether an in-force insurance policy is
performing according to the customer's expectations. More particularly,
the program assists the user in determining a confidence factor
relating to whether the customer's in-force insurance policy will
sustain to a particular point in time, such as the insured's one
hundredth birthday, according to known policy parameters such as
the current funding premium, cost of insurance, and other policy
expenses.
[0090] If the insured finds the in-force policy confidence factor
to be unacceptably low, the program assists the user in determining
what changes need to be made to generate a confidence factor that
the insured finds acceptable. The customer may increase the premium
payments, for example, or may lower the death benefit. Alternatively,
the in-force policy may be replaced with a new policy. The program
uses the same procedures set forth above to make this analysis.
The program makes an objective ranking of the options available
to the customer.
[0091] The program determines the in-force policy confidence factor
in a manner similar to that of the sustainability confidence factor
described above, wherein the program generates a plurality of trial
illustrations and reports a percentage of the trial illustrations
that met the customer's expectations. In determining the in-force
policy confidence factor, however, the program assigns an initial
value to the account value of the policy equal to the value of the
insured's actual policy assets.
[0092] The program is capable of generating additional reports
for life insurance policies that are held in trust. For example,
the program will generate a customized investment and administrative
policy statement for life insurance that sets out the objectives
for the policy, how the underlying investments of the policy will
be managed (for VUL policies), and details how the policy itself
will be managed over time as variances in investment returns (for
VUL policies) or interest rates (for UL policies) deviate from illustrated
expectations. This report may be similar to an investment policy
statement required under E.R.I.S.A. and, in a slightly different
form, under the Uniform Prudent Investors Act.
[0093] The program also generates an investment and administrative
policy statement for irrevocable life insurance trusts. This statement
is identical to the customized investment and administrative policy
statement for life insurance, except that it is specifically tailored
to the needs of individual and institutional fiduciaries. The reports
relating to life insurance policies held in trust may be generated
in paper form, electronic form such as e-mail, HTML, or PDF, or
both. |