Price of an Insurance Policy
The price of an insurance policy, other than term life insurance, is rarely apparent at first glance. The price should include not only the premium payments, but also the interest that could have been earned on the cash value or savings portion of the policy.
The following equation calculates the price per $1,000 of protection for one policy year and the interest rate earned on the savings portion of the policy.
To calculate the price, assume some value for
Even complex policies like
A Solver Equation for Insurance Price:
INS = the price per $1,000 of protection in one policy year. PREM = the annual premium amount.
LVAL = the value of the policy at the end of last year.
I% = the rate of return, as a percent, on a savings account. VAL = the value of the policy at the end of the current year. DIV = the dollar value of the dividend for one year.
FACE = the face value of the policy for one year.
The following example assumes that you have entered the above equation into the Solver. For instructions on entering Solver equations, see “Solving Your Own Equations,” on page 30.
14: Additional Examples 213
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