Scoring Methodology of Whole Life Savings Insurance

Protection and return are the major components of whole life savings insurance. Protection refers to the death benefit compensated to the beneficiary if the insured passes away. Return refers to the guaranteed and projected rates of the savings return provided by the insurer after the policy is in force for a certain period of time. Breakeven period is when the value of the policy exceeds the accumulated premiums paid. Every product has a different proposition, some focus on protection while some emphasise on wealth accumulation. Based on your preference, you can refer to the various 10Life scores designed by our actuaries including "death benefit", "guaranteed return", "projected return" and "overall whole life savings".

General Assumptions

  • The insured is 35-year-old male, non-smoker
  • Premium term of 1-3 years, 4-8 years, 9-12 years or 15-30 years paid annually on time, with total premium of USD100,000
  • No policy loan, partial cash value and/or dividends/bonus (if any) redemptions made during the specified policy period

1. Death Benefit Score

This score measures the benefit multiplier of the amount that the beneficiary receives in the event of death of the insured. The higher the benefit multiplier, the higher the leverage and the higher the death benefit score. The detailed methodology is as follows:

1.1 Only Guaranteed Death Benefit is considered

Some of the death benefits are guaranteed by the insurer, some are projected (i.e. not guaranteed). Our model measures the minimum death benefit that the insurer is obligated to pay the beneficiary, and non-guaranteed death benefits are not counted. Guarantees are more important when it comes to providing financial protection in difficult times.

1.2 Calculating the Guaranteed Death Benefit Multiplier

Guaranteed Death Benefit Multiplier=Guaranteed Death Benefit at specific time period ÷ Total premium paid
E.g. Guaranteed Death Benefit multiplier at Year 10=Guaranteed Death Benefit at Year 10 ÷ Total premium paid over 10 years

1.3 Comparing death benefits at different time horizons

The death benefit may vary at different times during the policy period depending on the product design. We take the death coverage at Year 1, Year 10, Year 20 and Year 30 into consideration for a comprehensive comparison. The score is based on the average of these four time horizons.

1.4 Benchmark against term life benefit multipliers

Term life insurance is typically the less expensive way to purchase a substantial death coverage over a specific period of time. 10Life uses the term life benefit multipliers, of above defined time horizons, as benchmarks for measuring the attractiveness of the death benefit of whole life savings insurance.

Death Benefit Score is the average of the Guaranteed Death Benefit Multiplier vs. the Term Life Benefit Multiplier for the four time horizons described above.

2. Guaranteed Return Score

Guaranteed return is one of the key differentiators between buying a mutual fund and a savings insurance product. 10Life compares the guaranteed internal rate of return ("IRR") on the products, based on the minimum cash value obligated by the insurer at the end of the specified policy period, benchmarked against the market. The detailed methodology is as follows:

2.1 Why internal rate of return

The internal rate of return ("IRR") is a financial calculation that approximates the annualised return of investments. It is used by corporations and investment firms to evaluate how profitable an investment is. You can view it as the annual percentage rate you earn after you put your money into a bank account or a certificate of deposit for a specific time period. Our calculation is based on the premiums paid and the guaranteed return you receive in the future.

2.2 Compare the guaranteed IRR at different time horizons

To reflect different needs, we measure the 10-year, 20-year and 30-year guaranteed IRRs, assuming the policyholder withdraws the guaranteed cash value as a lump sum at the end of the 10th, 20th and 30th policy years respectively.

2.3 Benchmark return against the market

To measure the attractiveness of the guaranteed rates of return, we use the yields from the best performing product in the market as benchmarks. These benchmarks may be updated from time to time to reflect changes in the market.

Guaranteed Return Score is the average of the Guaranteed IRR vs benchmark for the three time horizons described above, with the exception on the 15-30 years premium term category, where only the 20-year and 30-year returns are taken into account in the score.

3. Projected Return Score

This score compares the projected internal rate of return ("IRR") on the products, based on the base case scenario cash values projected by the insurer at the end of each specified period of the insurance policy, benchmarked against the market. The detailed methodology is as follows:

3.1 Projected returns include all non-guaranteed values from the insurance proposal

The projected rates of returns are NOT guaranteed and may change over time as they include non-guaranteed elements such as dividends, bonuses and interests. 10Life uses the cash values assumed under the current “Base Case Scenario” by the insurer in the policy proposal, NOT the pessimistic or optimistic scenarios.

3.2 Compare the projected IRR at different time horizons

To reflect different users’ needs, we measure the 10-year, 20-year and 30-year non-Guaranteed IRRs, assuming the policyholder withdraws the total cash value (including guaranteed & non-guaranteed values) as a lump sum at the end of the 10th, 20th and 30th policy years respectively.

3.3 Benchmark return against the market

To measure the attractiveness of the projected rates of return, we use the yields from the best performing product in the market as benchmarks. These benchmarks may be updated from time to time to reflect changes in the market.

Projected Return Score is the average of the projected IRR vs benchmark for the three time horizons described above, with the exception on the 15-30 years premium term category, where only the 20-year and 30-year returns are taken into account in the score.

Since the implementation of GL16 in early 2017, insurers are required to disclose fulfillment ratios of non-guaranteed dividends/bonuses. However at this stage, the published data available in the market mainly cover the fulfillment ratios of the first few policy years, making it insufficient to determine the ability of insurers fulfilling the long term nature of these non-guaranteed returns. Moreover, products and market assumptions are constantly changing, making it difficult to predict future returns based on past returns. Therefore, 10Life does not take published fulfillment ratios into the calculations of Projected Return Score.

10Life scores are for reference only, and do not constitute any insurance purchase advice. You should seek independent advice from licensed insurance advisors before purchasing any insurance products. If you have any questions or suggestions about the above methodology, please email us at enquiries@10Life.com.

Updated on Dec 23, 2020 
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