Scribd
Upload
3K views2 pages

LLQP: Quickfact Formulas: Underwriting & Claims Need For Insurance

nmmnnmb

Uploaded by

pkgarg_iitkgp
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
3K views2 pages

LLQP: Quickfact Formulas: Underwriting & Claims Need For Insurance

nmmnnmb

Uploaded by

pkgarg_iitkgp
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 2

LLQP: QuickFact Formulas

UNDERWRITING & CLAIMS

NEED FOR INSURANCE

Premiums

Amount of Life Insurance

Basic life:

(Premium rate x rate per $1,000 of coverage in the policy)


+ Policy fee = annual premium
Assume the premium rate per $1,000 is $11.13 and there
is a policy fee of $121. Then the annual premium for a face
amount of $300,000 would be $300,000 x $11.13
$1,000 = $3,339 + policy fee = $3,339 + 121 = $3,460
If the premiums are paid monthly, the annual premium is
multiplied by the modal factor for monthly premium (also
called the PAC factor).
e.g., if the annual premium is $3,460 and the modal factor
for monthly premium is 0.08, then the monthly premium
would be $276.80 ($3,460 x 0.08).

Capitalization of income (human life value


approach):

Adjustments

e.g. if assets = $5,000, final expenses = $10,000, continuing


income = $40,000, continuing expenses = $50,000, interest
rate = 4%; then: step 1: $5,000 - $10,000 = $5,000 cash
needed; step 2: $40,000 $50,000 = $10,000 income
needed; step 3: $10,000 4% = $250,000; step 4: $250,000
+ $5,000 = $255,000 insurance needed

For misstatement of age:


premium charged correct premium = correct rate x face
amount = amount of insurance
For special risks:
Flat dollar increase: $/$1,000 of coverage
Table rating (percentage increase): %/$1,000 in coverage

Basic life:

Benefits

face amount of the policy + extras, as entitled policy loan


and interest to date of death outstanding premiums =
net death benefit

Accidental Death Benefit (ADB) rider:


face amount x 2 = ADB benefit

earned income x 60% (assuming a 60% benefit payment)


12 = monthly disability income benefit
(pre-disability income earned)
residual benefit

interest rate = insurance need

Capital retention (capital needs approach):

Four steps:
1: assets final expenses = cash needs
2: continuing income continuing expenses = income
needs
3: income needs interest rate = capitalized value
4: capitalized value +/- cash needs* = insurance need
* add cash needs if a negative sum; subtract
cash needs if a positive sum

Amount of Disability Insurance


Need is based on earned income calculation of benefit. See
column on left.

INVESTMENTS
Segregated Funds (IVICs)

Disability:

Residual disability:

annual income

pre-disability income =

Group:

STD: annual salary x 60% or 66 2/3% 12 = monthly


benefit
LTD: annual salary x 60% (employee-paid premium) or 75%
(employer-paid premium) 12 = monthly benefit

Deductibles
Single deductible:

claim ($) deductible ($) = reimbursement ($)


e.g. if claim = $250; deductible = $50; then: $250 -$50
= $200 reimbursement

Co-insurance:

claim ($) x co-insurance (%) = reimbursement ($)


e.g. if claim = $250; coinsurance = 90%; then: $250 x
90% = $225 reimbursement

Deductible + coinsurance:

claim ($) deductible ($) = net claim ($) x


co-insurance (%) = reimbursement ($)
e.g. if claim = $250; coinsurance = 90%; deductible = $50;
then: $250 -$50 = $200 net claim x 90% = $180
reimbursement

Family deductible:
claim ($) (family deductible [$] single deductible

[$] already paid) = reimbursement ($)


e.g. if claim = $250; family deductible = $100; single
deductible already paid = $0; then: $250 ($100 -$0) =
$150 reimbursement

Copyright 2011 Oliver Publishing Inc. All rights reserved.

Maturity and Death Benefit Guarantees:

deposits x (guarantee amount, i.e. 75%) = guaranteed


payment 10 years from date of deposit
e.g. if deposits = $10,000, guarantee = 75%; then:
$10,000 x 75% = $7,500

Segregated Funds Withdrawals (reduce guarantees):


Linear reduction method:
Deposits withdrawals = contract value on which
guarantee is based
e.g. if deposits = $1,000; withdrawal = $500;
then:$1,000 -$500 = $500 contract value

Proportional reduction method:

Three steps:
1. withdrawal value of units = no. of units to be
surrendered
2. original no. of units no. of surrendered units =
new unit balance
3. (new unit balance original no. of units) x original
value of fund = contract value on which guarantee is
based
e.g. if withdrawal = $5,000; value of units = $10; original no.
of units = 1,000; original value of fund = $2,000 ; then:
step 1: $5,000
$10 = 500 units; step 2: 1,000 500 =
500 units; step 3:(500 1,000) x $2,000 = $1,000 contract
value

Inflation and investment returns


Rates of return:

Nominal: return (%) = nominal rate of return (%)


Real: return (%) inflation rate (%) = real rate of return

LLQP: QuickFact Formulas


Adjusted cost basis (ACB)

TAXATION

Before December 2, 1982


Premiums dividends* = adjusted cost basis (ACB)
After December 2, 1982
Premiums net cost of pure insurance (NCPI)
dividends* = adjusted cost basis (ACB)

e.g. if premiums = $5,000; NCPI = $3,000; dividends = $100;


then: $5,000 -$3,000 -$100 = $1,900 adjusted cost basis
*if applicable

Taxation of Cash Surrender Value (CSV)


Before December 2, 1982
CSV (premiums dividends*) = taxable gain
After December 2, 1982
CSV (premiums - net cost of pure insurance [NCPI]
dividends*) = taxable gain

e.g. if CSV = $10,000; premiums = $5,000; NCPI = $3,000;


dividends = $500; then: $10,000 ($1,500) = $8,500 taxable
gain *if applicable

Policy Loans and Taxation of Policy Loans


Loan: CSV x 90% = max. policy loan

e.g. if CSV = $6,000; then: $6,000 x 90% = $5,400 max. loan

Tax on loan: loan adjusted cost basis (ACB) =


taxable portion of loan

e.g. if loan = $5,400; ACB = $4,000; then: $5,400 - $4,000 =


$1,400 of the loan is taxable under certain conditions

Tax Deferral
RRSP Contributions:
Basic: earned income x 18% = contribution limit to a
maximum dollar limit for the year (2014 = $24,740;
2013 = $23,820)
With Pension Adjustment (PA): basic contribution
pension adjustment for previous year

Taxation of Investments

Interest:
interest income x investors marginal tax rate (MTR) =
tax on interest income

e.g. if $1,000 earned in interest and a marginal tax rage of 26%;


then: $1,000 x 26% = $260 owed in interest

Capital gains/loss:
market value of capital property cost of capital property
= capital gain or capital loss on capital property
e.g. if $6,500 selling price - $500(cost) = $6,000 capital gain;
if $6,500 selling price - $8,000 (cost) = ($1,500) capital loss

Capital gains tax:


market value of capital property cost of capital
property = capital gain x .5 = taxable portion of gain x
investors marginal tax rate = capital gains tax
e.g. if $6,000 sale and a marginal tax rate of 26%: then:
$6,000 x .5 =$3,000 x 26% = $780 owed in capital
gains tax

Stock Dividends:
The dividend tax credit and the dividend gross-up
amount are changing each year as of 2010. For
this reason, the calculation of taxation on stock
dividends is no longer being tested.
Segregated Funds (tax consequence of withdrawal):
Three steps:
1. amount of withdrawal fair market value of contract =
percentage of disposition
2. fair market value of contract adjusted cost basis =
basis for taxation
3. basis for taxation x percentage of disposition =
capital gain
e.g. if withdrawal = $1,000; fair market value of contract =
$5,000; adjusted cost basis = $2,500; then: step 1: $1,000
$5,000 = 20% of contract being disposed; step 2: $5,000
$2,500 = $2,500 basis for taxation; step 3: $2,500 x 20% =
$500 capital gain

With Past Service Pension Adjustment (PSPA):


basic contribution PSPA for current year

MORE INVESTMENT FORMULAS


Present Value
present value (PV) = future value (FV) (1 + interest
rate [i])n
e.g., if future value is $50,000; interest rate is 3.1%;
and n (number of compounding periods [typically the
number of years]) is 3; then:
PV = 50,000 (1 + .031)3; PV = 50,000 (1.031) 3;
PV = 50,000 (1.031 x 1.031 x 1.031)*;
PV = 50,000 1.096; PV = $45,620.44
*(remember to solve the calculation in the brackets first)

Copyright 2011 Oliver Publishing Inc. All rights reserved.

Future Value
future value (FV) = present value (PV) x (1 +
interest rate [i])n
e.g., if present value is $50,000; interest rate is 3.1%;
and n (number of compounding periods [typically the
number of years]) is 3; then:
FV = 50,000 x (1 + .031)3; FV = 50,000 x (1.031)3;
FV = 50,000 x (1.031 x 1.031 x 1.031)*;
FV = 50,000 x 1.096; FV = $54,800
*(remember to solve the calculation in the brackets first)

You might also like