You are using discount rate of 3%. A dollar in 2014 is worth 0.97 in 2013. So a dollar in 2013 is worth 1.0309 in 2014. the inflation/investment rate is 3.09%. A little pedantic here, but this small difference make a big difference in cases of big percentages, or long time.
Well, 3% is just a random number closer to inflation. Well, I'm trying not to confuse non-finance people.
its easier to tell people that money shrink in the future but it's confusing to them that money must be invested to prevent it from shrinking
Your example and methdology will show that you can buy a car with this $80,000 now and today but in the future, a car is probably gonna worth >$80,000 (like $160,000) in the future, but my example and methodology will show a $80,000 today can buy u a car now but a $80,000 in the future can probably buy u a wheel or even a baby seat only
in x years later, you still still take back $80,000, but how much and what the real value after inflation of this $80,000 exactly gonna be? For example, when you are 71 years old, (40 years later), the $80,000 ur spouse will take back (probably can buy u a toyota vios today in 2013) is only worth $23,000 in real value (Probably $80,000 can buy u a COE only in 2053).
For financial product, investment rate rather than inflation rate is normally used. While we do not like inflation, there is nothing we can do about inflation. We are concerned with maximising the return, hence the use of investment rate.
Well, insurance is not investment, investment is not insurance, so im not concerned with maximising return but rather the time value of money and also that why they added investment into insurance to "trick" and "confuse"
So the purpose of this table is to show the value of money and not showing the opportunity cost of not investing. Do not be confused.
C[age=71] represent the value of you will be paying for the entire term life policy, at 2013 value(net present value). However, I am unsure how you obtained the value for D[age=71]
Column D represent the time value of your insurance coverage, that guarantee sum u get when u uplorry which means if u uplorry at x year, how much will your insurance coverage erode with inflation.
You are missing out one payment for the whole life policy. There are total of 25 payments, but your calculation only has 24. Whole life policy has different type of payment, some limited pay, some pay throughout the life of the policy. Limited pay can be 10/15/25 or any number of years of payment, not necessarily stopping at 65.
Missing 1 payment doesn't make a big difference, I came out with my calculation base on your example. My previous wholelife plan is until 65.
G[age=55] represents the amount you will pay for whole life policy in 2013 value.
Column H, in short, does not make sense. Unless you are trying to find out what value you are paying for in term of 2012/2011/1990 value. Another case is that you are only applying for the policy 2014/2015/2030, and you are calculating how much money you need to prepare in 2013.
Column I, is invalid for age 31 to 70, since the coverage is 200k rather than 80k. If we were to take I[age=99], yes it means that the death benefit is 10082.49 in 2013 value. Note that this is only part of the death benefit. The total death benefit is surrender value+death benefit from this 80k+maybe some extra.
As usual, I need more details, but base on my previous whoelife, the surrender value will usually be slightly more than $54,000, the total amount of premium paid. So even though you will still take back about $130,000 ($80,000+$54,000), the table will show the after inflation value of this $130,000 in that particular year
While I like your conclusion, your table does not support the first statement. Your table does not show the surrender value of whole life. Your table has shown part of the death benefit(80k). To get the surrender value for different years, you have to ask an agent to generate it for you.
Yes, as usual, I came out with this table base on your calculation.
I would appreciate if an agent could provide me with the table to allow me to show that inflation will erode your death coverage in the long run. And how a $80,000 death coverage that your spouse will collect can only be worth less than $10,000 after 40 years even
And another conclusion from my calculation is this term plan is not really worth it in term of the premium paid and the death covetage. Pruterm vantage has lower premium and higher coverage.
