1 March 2015 version Insurance Concep VARIABLE UNIVERSAL LIFE REVIEW
Transcript
1. 1 March 2015 version Insurance Concepts VARIABLE UNIVERSAL
LIFE REVIEW
2. 2 Concepts of V.U.L March 2015 version
InsuranceConcepts
3. 3 Course Content I. Concept of Variable Universal Life II.
Financial Planning Process III. Types of Investment Assets IV.
Types of Funds V. Types of Variable Contract VI. Definition of
Terms VII. How does VUL work? VIII. Basic Computation of Units
4. 4 Non-Traditional Policies 1. Cash Values/Fund Values are
not pre-determined 2. Additional premiums may be allowed (on top of
regular premiums) 3. Policyholders may have investment options 4.
Explicit charges Examples: Universal Life, Variable Life, and
Variable Universal Life 1. Premiums, cash values and death benefits
are pre- determined. 2. Policyholders do not have investment
options 3. Implicit charges Examples: Whole Life, Endowment and
Term Traditional Policies Concept of VUL
5. 5 Variable Life (VL) 1. Fixed premium, minimum death benefit
2. Cash value depends on investment performance 3. Policyowner has
a choice of investment funds 1. Unbundled 2. Flexible Premiums,
Death Benefit 3. Seen as savings account plus term insurance 4.
Interest credited to account value, usually subject to minimum
interest rate 5. Policyowner does not have a choice of the
investment funds Universal Life (UL) Concept of VUL
6. 6 Variable Universal Life Investment Control Premium
Flexibility Death Benefit Concept of VUL
7. 7 Insurance Charge Single Premium or Regular Premium
Initial/Premium Charge Initial/Premium Charge Top-Ups/Excess
Premiums Periodic Charge POT OF GOLD ILLUSTRATION Purchase Units in
Select Funds Concept of VUL
8. 8 Professional ManagementDiversification Flexibility Access
Investment RiskAdministration Transparent Charges Client is
Involved VUL Advantages
9. 9 Peso cost averaging is an investing technique intended to
reduce exposure to risk associated with making a single large
purchase. The idea is simple: spend a fixed peso amount at regular
intervals (e.g., monthly) on a particular investment or portfolio,
regardless of the unit price Peso Cost-Averaging
10. 10 Example: If you invest Ps. 10,000 today, and the unit
price is Ps. 1/unit, you will receive 10,000 units. If you invest
the same amount next month, and the unit price is 90 centavos/unit,
you will have purchased 11,111 units then. By adding your
investment (Ps. 10,000 + 10,000) and dividing the by the total
number of units (10,000 + 11,111), you would end up having an
average purchase price of 95 centavos per unit. Ps. 20,000
investment = 21,111 units Peso Cost-Averaging
11. 11 * It complements peso-cost averaging Habit of Saving Buy
low, sell high!Regular Top-Ups How can we maximize the returns of
the fund? Peso Cost-Averaging
12. 12 Financial Planning V.U.L InsuranceConcepts March 2015
version
13. 13 - is managing ones financial resources in order to
achieve specific goals - necessary to develop a financial plan that
is suited to clients unique requirements GOALS RISK TOLERANCE
FINANCIAL RESOURCES PERSONAL CIRCUMSTANCES Financial Planning
14. 14 Set Goals Analyze Resources Evaluate Investment Options
Implement the Plan Evaluate the Plan Financial Planning
Process
15. 15 SET GOALS To enhance or provide a comfortable standard
of living; to provide for dependents To improve ones financial
situation To supplement retirement income To provide funds for the
education and bringing up of children To provide a fund for paying
necessary costs and taxes when a person dies To save for the down
payment/major purchase or event (house/car/debut or wedding)
Financial Planning Process
16. 16 To enhance or provide a comfortable standard of living;
to provide for dependents To improve ones financial situation To
supplement retirement income To provide funds for the education and
bringing up of children To provide a fund for paying necessary
costs and taxes when a person dies To save for the down
payment/major purchase or event (house/car/debut or wedding)
ANALYZE RESOURCES Keep stock of what you already have (cash/ time
deposits, dollar deposits, real estate) The investment decision is
greatly affected by the level or amount of funds available For the
investor: the more funds, the greater/wider is the choice of
investment available Set aside the less liquid assets from those
you could use for investment purposes & include a contingency
fund Review monthly expenses by separating the essential or living
expenses from the non- essential or discretionary expenses.
Financial Planning Process
17. 17 To enhance or provide a comfortable standard of living;
to provide for dependents To improve ones financial situation To
supplement retirement income To provide funds for the education and
bringing up of children To provide a fund for paying necessary
costs and taxes when a person dies To save for the down
payment/major purchase or event (house/car/debut or wedding)
EVALUATE INVESTMENT OPTIONS You will realize that you cant afford
to set aside funds for all your goals at the same time. Categorized
goals: short-term (less than 5 years) medium term (5-10 years) long
term (over 10 years) Tip #1 Dont invest in something you dont
understand Educate yourself Understand the investment product Go
out of your way to see what investments are available in the market
Financial Planning Process
18. 18 To enhance or provide a comfortable standard of living;
to provide for dependents To improve ones financial situation To
supplement retirement income To provide funds for the education and
bringing up of children To provide a fund for paying necessary
costs and taxes when a person dies To save for the down
payment/major purchase or event (house/car/debut or wedding)
EVALUATE INVESTMENT OPTIONS Evaluate 1. Potential Return How much
can you reasonably expect to earn by investing in the product?
Historical return on investment or yield on the investment. 2.
Safety What are the risk involved? Can you lose all or part of your
investment? 3. Liquidity & Marketability (Accessibility of
Funds) - If the individual requires the fund in a short time. Can
you readily convert your instrument into cash? - Consider the cost
or penalty of realizing the investment before its maturity period.
Are there any penalties for pre-termination? - Is there a ready
buyer or a market for your investment? How much is the initial cost
in setting up or buying into the investment? Minimum investment
amount? Financial Planning Process
19. 19 To enhance or provide a comfortable standard of living;
to provide for dependents To improve ones financial situation To
supplement retirement income To provide funds for the education and
bringing up of children To provide a fund for paying necessary
costs and taxes when a person dies To save for the down
payment/major purchase or event (house/car/debut or wedding)
EVALUATE INVESTMENT OPTIONS Evaluate 4. Performance of the
investment - countrys economic factors - competencies/capabilities
of the management team - the invested companys level of costs 5.
Taxation Treatment Different types of investment vehicle/s enjoy
(or burden) a wide range of tax treatment. What are the tax
implications? What are the subsequent taxation liabilities of the
investor? Financial Planning Process
20. 20 To enhance or provide a comfortable standard of living;
to provide for dependents To improve ones financial situation To
supplement retirement income To provide funds for the education and
bringing up of children To provide a fund for paying necessary
costs and taxes when a person dies To save for the down
payment/major purchase or event (house/car/debut or wedding)
EVALUATE INVESTMENT OPTIONS Tip#2 - No Risk , No Gain Tolerance for
the magnitude and variability of future return loss. - The higher
the risk, the higher must be the potential return in order to
attract people into investing in it. 2 Types of Investors 1. Some
investors may be tempted to PLAY it safe CONSERVATIVE instruments
(people with less financial resources less tolerance for Risk). 2.
High net worth individuals are the ones who are less averse to risk
they have money to cover for losses. (people with more money high
tolerance for RISK). Financial Planning Process
21. 21 To enhance or provide a comfortable standard of living;
to provide for dependents To improve ones financial situation To
supplement retirement income To provide funds for the education and
bringing up of children To provide a fund for paying necessary
costs and taxes when a person dies To save for the down
payment/major purchase or event (house/car/debut or wedding)
EVALUATE INVESTMENT OPTIONS Types of Risk Investment: 1. Low Risk
investment - Bank deposits/short-term government securities
(locked-in at interest) 2. High Risk investment investment in
shares Investors level of risk averseness depends on 1. Age 2.
Investment Objectives 3. Financial Condition 4. Personality
Financial Planning Process
22. 22 To enhance or provide a comfortable standard of living;
to provide for dependents To improve ones financial situation To
supplement retirement income To provide funds for the education and
bringing up of children To provide a fund for paying necessary
costs and taxes when a person dies To save for the down
payment/major purchase or event (house/car/debut or wedding)
EVALUATE INVESTMENT OPTIONS Tip#3 - Match the investment product
with your time horizon - A match between the investment horizon and
the maturity of an investment asset is very important 1. Short Term
Goals - Consider investments that are not risky or highly
speculative (ex. Government securities, time deposits, high-grade
commercial paper, bond mutual funds & money market funds) 2.
Medium Term Goals - Objective: medium risk-medium return - Less
speculative investment returns such as blue-chip stocks &
balanced mutual funds Financial Planning Process
23. 23 To enhance or provide a comfortable standard of living;
to provide for dependents To improve ones financial situation To
supplement retirement income To provide funds for the education and
bringing up of children To provide a fund for paying necessary
costs and taxes when a person dies To save for the down
payment/major purchase or event (house/car/debut or wedding)
EVALUATE INVESTMENT OPTIONS 3. Medium Long Term Goals - Objective:
to MAXIMIZE investment return rather than MINIMIZE investment risk
- take some risks since you have more time to make-up for possible
losses - establish a portfolio that is heavy on high-risk- high
return (ex: stocks) Financial Planning Process
24. 24 To enhance or provide a comfortable standard of living;
to provide for dependents To improve ones financial situation To
supplement retirement income To provide funds for the education and
bringing up of children To provide a fund for paying necessary
costs and taxes when a person dies To save for the down
payment/major purchase or event (house/car/debut or wedding)
EVALUATE INVESTMENT OPTIONS Tip#4 - Diversification - Risk are
inherent in all types of investments Process of investing across
different asset classes and across different market environments
Proven effective in reducing risk without sacrificing returns Dont
put all your eggs in one basket. Spreading of risk by putting the
money under management into several categories of investments such
as stocks, bonds and money market instruments. Financial Planning
Process
25. 25 To enhance or provide a comfortable standard of living;
to provide for dependents To improve ones financial situation To
supplement retirement income To provide funds for the education and
bringing up of children To provide a fund for paying necessary
costs and taxes when a person dies To save for the down
payment/major purchase or event (house/car/debut or wedding)
IMPLEMENT THE PLAN Avoid procrastination Achieving ones financial
goal is financial discipline Stick to plan if you havent changed
your goals or personal circumstances Financial Planning
Process
26. 26 To enhance or provide a comfortable standard of living;
to provide for dependents To improve ones financial situation To
supplement retirement income To provide funds for the education and
bringing up of children To provide a fund for paying necessary
costs and taxes when a person dies To save for the down
payment/major purchase or event (house/car/debut or wedding)
EVALUATE THE PLAN Financial Planning Process A continuing process
because the plan has to be evaluated regularly The plan may have to
be revised from time to time due to changes in the market
conditions & the investors needs & wants Changes -- in the
Market Conditions: - new investment products - revisions of tax
laws - prolonged period of economic growth or difficulties -- in
the Investors personal requirements: - being promoted/getting
married/ getting older
27. 27 Types of Investment Assets March 2015 version V.U.L
InsuranceConcepts
28. 28 Investments with a fixed principal amount, a fixed
period of time (term) and a specific rate of interest (coupon).
Types of Investments 1. Fixed Income Securities
29. 29 1. Fixed Income Securities A. Money Market Securities
Commonly referred to as cash and deposits Any deposit instruments
with a maturity of 1 year or less e.g. Treasury Bills and Bank
Deposits Types of Investments
30. 30 Loan that pays interest over a fixed term or period of
time 3 general types of bonds - Government Bonds Corporate Bonds
Convertible Bonds B. Bonds Types of Investments 1. Fixed Income
Securities
31. 31 Common Stocks Preferred Stocks Pieces of a corporation
pie The ownership interest of shareholders in a corporation 2.
Equity Securities (Stocks) Types of Investments
32. 32 3. Common Trust Fund A form of pooled investment
maintained by a bank Sells and buys back units of participation at
net asset value Monitored by Banko Sentral ng Pilipinas (BSP) Types
of Investments
33. 33 Open-end investment company A regulated investment
company with a pool of assets that regularly sells and redeems its
shares Monitored by Securities & Exchange Commission (SEC) 4.
Mutual Funds Types of Investments
34. 34 3 Types of Properties: Agricultural Property Domestic
Property & Commercial/Industrial Property 5. Property Something
owned; any tangible or intangible possession that is owned by
someone Types of Investments
35. 35 A promise of compensation for specific potential future
losses in exchange for a periodic payment 6. Insurance Types of
Investments
36. 36 Types of Funds March 2015 version V.U.L
InsuranceConcepts
37. 37 37 Types of Funds Stocks or Equity Funds Bond Funds
Balanced Funds Money Market Funds Cash Funds Specialized Funds
38. 38 38 Stocks or Equity Funds - invest in shares of stocks-
prices may be volatile - mainly to generate long-term for capital
appreciation through investment in high-quality equities
diversified across sectors Types of Funds
39. 39 39 Bond Funds - invest mainly in long-term debt
instruments and high-quality fixed income instruments that are
classified as below average risk - aim to generate fixed regular
income Types of Funds
40. 40 40 Balanced Funds - invest in both shares of stock and
debt instruments - the allocation my be fixed or may vary at the
portfolio managers discretion Types of Funds
41. 41 41 Balanced Funds - it combines the current income from
bonds and capital appreciation prospects from stocks. For example,
60% of the funds are in bonds & 40% in equities Types of
Funds
42. 42 42 Money Market Funds - invest purely in short-term (one
year or less) debt instruments - may be diversified or specialized
type of money market instrument (prime commercial paper/short-term
government securities) Types of Funds
43. 43 43 Cash Fund - Invest in cash and other forms of bank
deposits bonds and capital appreciation prospects from stocks. For
example, 60% of the funds are in bonds & 40% in equities Types
of Funds
44. 44 44 Specialized Funds - Restrict investments to a
particular country or region Income securities - Offer exposure to
different markets in different industry/regions Types of Funds
45. 45 Types of Variable Contracts March 2015 version V.U.L
InsuranceConcepts
46. 46 Key Features of VUL Single Regular (Annual) PayPayment
Period For Regular Premium: Premiums are paid regularly Have
flexibility of varying the level of regular premium payments,
making single premium top-ups or taking premium holidays If funds
are sufficient, the policyowner may stop paying for premiums The
policyowner may vary the sum of his policy without changing the
level of his regular premiums
47. 47 Philippine Peso US Dollar Currency Single Pricing Method
Dual Pricing Method Types of Pricing Method Policy Fee
Mortality/Assurance Charges Unallocated Premiums Full Withdrawal
Charges Investment Management Charges (Bid Offer Spread & Fund
Management Fee) Types of Charges Key Features of VUL
48. 48 Type of Life Insurance LINKED to Investment Funds Type
of VUL Contracts SINGLE PREMIUM INVESTMENT LINKED WHOLE LIFE PLAN
1. The amount of insurance protection is a percentage (usually
125%) of the single premium paid 2. For long-term savings and
investment; offers nominal life protection 3. Top-ups are allowed
4. Right to withdraw full or partial units REGULAR PREMIUMS
INVESTMENT WHOLE LIFE PLAN 1. Paid on regular intervals for
investments & life protection. 2. Life protection is the
priority. 3. Premium holiday or top-ups are allowed. 4. Partial
& full withdrawal are allowed.
49. 49 Type of VUL Contracts Type of Life Insurance LINKED to
Investment Funds INVESTMENT - LINKED INDIVIDUAL PENSION PLAN 1.
Usually involves a high allocation of the premium contributions to
investments through simply accumulating the fund to retirement 2.
No life insurance cover other than a return of investment funds 3.
There are tax advantages for employees
50. 50 Type of VUL Contracts INVESTMENT - LINKED PERMANENT
HEALTH INSURANCE 1. Provides health coverage such as disability
income. 2. Contains cash value unlike the traditional health plans.
INVESTMENT-LINKED DREAD DISEASE INSURANCE 1. A policy which
advances the whole sum assured in the event of the diagnosis of a
critical illness. Type of Life Insurance LINKED to Investment
Funds
51. 51 Definition of Terms March 2015 version V.U.L
InsuranceConcepts
52. 52 Unit Pricing is the process whereby the unit price of
units is set. Offer price or Selling Price the price which the
insurer uses to allocate units to a policy when premiums are paid
Bid price or Buying Price the price which the insurer will give for
the units if the policyholder wishes to cash in or claim under the
policy Top ups are single premium injections which can be used to
buy additional units Premium Holiday refers to the cessation of
premium payments on a variable life insurance contract for a
period, with a view to continue it later on Forward Pricing is a
pricing structure wherein the buying and selling prices of units
are determined at the next valuation date Allocation of premiums
means the periodic distribution of premiums to insurance and units
15 day cooling-off period the contract may be returned within 15
days of receipt by the policyholder Grace Period 31 days grace
period Definition of Terms
53. 53 Policy Fee it covers administrative expenses Mortality
Charges it covers mortality cost (dependent on age) Unallocated
Premiums a part of the premium being deposited for marketing &
setting-up expenses of the policy Full Withdrawal Charges deducted
when the policy is fully withdrawn Bid-Offer Spread difference
between bid and offer prices Fund Management Fee it is imposed on
each investment fund (.5% - 2% per annum) - used to cover
investment expenses Fund Switching Charge What is Switching? -
Facility for transferring from one fund to another - Limited number
of switches are usually not charged - Useful in retirement and
education fees planning Fund Allocation Charge changes in fund
allocation in the policy Definition of Terms
54. 54 How does VUL work? March 2015 version V.U.L
InsuranceConcepts
55. 55 Total Charges Admin & Mortality Charge Covers the
cost of providing life protection for the insured Varies according
to the age of the insured May be paid once at the start of the
policy or on a recurrent manner Is usually imposed once as a flat
fee at the start of the policy How does VUL Work? Single Premium
Ps. 100,000 Total Charges
56. 56 Single Premium Ps. 100,000 Total Charges Ps. 3,200.00 Ps
96,800 : Net Available for Investments Policy Fee Ps. 200
Administrative & Mortality Charge Ps. 3% of the Premium Ps.
100,000 x 3% = Ps. 3,000.00 How does VUL Work?
57. 57 Ps 96,800 : Net Available for Investments Offer Price Is
the price used to allocate/create units @ Ps. 1.50 Purchased Units
Ps. 96,800/Ps. 1.50 64,533.33 units created Bid Price Is the price
used for cash-in or claims @ Ps. 1.40 Units Purchased &
Remaining Note: OFFER PRICE or SELLING PRICE is the price which the
insurer uses to allocate units to a policy when premiums are paid.
BID PRICE or BUYING PRICE is the price which the insurer will give
for the units if the policyholder wishes to cash in or claim under
the policy. BID -OFFER SPREAD is the difference between the bid
price and the offer price. How does VUL Work?
58. 58 REMEMBER Offer Price is always greater than the Bid
Price Bid Offer spread is expressed in percentages, e.g. 5% or 0.05
Prices (and computation) are rounded down to 4 decimal places Offer
and Bid Prices How does VUL Work?
59. 59 Ps. 100,000 : Single Premium Policy amount Ps. 90,346.66
Offer Price or Selling Price Ps. 1.50 Bid Price (buying price) Ps.
1.40 Bid Offer Spread is the difference between Offer and Bid Price
.10 or 6.67% How does VUL Work? OFFER Price is the price used to
allocate units BID Price is the price for cash-in or claims Units
bought 64,533.33
60. 60 PARTIAL AND FULL WITHDRAWAL Ps 96,800 : Net Available
for Investments Units to be CANCELLED Ps. 20,000/ Ps. 1.40
14,285.7143 units Partial Withdrawal BID PRICE 64,533.33 Units
Purchased & Remaining Ps. 20,000 Full of Partial Withdrawal of
Units is Allowed Units Remaining after Withdrawal 64,533.33
-14,285.7143 = 50,247.6157 units Is the price used for Cash-in or
Claims @ Ps. 1.40 How does VUL Work?
61. 61 Computation of Units Single Pricing Method There is only
one price quoted whether the policyowner is buying or selling his
units. Dual Pricing Method The policyowner buys the units at the
offer price and sells the units at the bid price. How does VUL
Work? EXAMPLE:
62. 62 How does VUL Work? Computation of Units No. of Units =
Single Premium/Unit Price rounded down to 4 decimal places Bid
Price = Offer Price (1-Spread%) or BO1S Offer Price = Bid Price /
(1-Spread%) or OB/1S Yield = (Full Withdrawal Value / Single
Premium) 1/n - 1 Accumulation of Fund = x (1 + i) n Important
Formulas
63. 63 No. of Units (cancelled) = Amount/Unit Price No. of
Units (bought) = Allocated Premium/Unit Price Fund Value = No. of
Units x Unit Price How does VUL Work? Single Pricing Method
64. 64 How does VUL Work? Basic Computation Example: A
policyowner pays a single premium of Php 50,000 and the unit price
at that time is Php 1.50. The insurance company deducts an initial
charge of 5% and a mortality charge of 1.6%, both as a percentage
of single premium. The initial charge is deducted before the
premium is allocated while the mortality charge is deducted by
canceling the units. Single Pricing Method
65. 65 We calculate the charges first. Initial Charge (5%
Single Premium) Php 2,500.00 Mortality Charge (1.6% x Single
Premium) 800.00 Because the initial charge is deducted before the
single premium is used to buy units, we calculate the remaining
single premium. Single premium Php 50,000.00 Less: Initial Charge -
2,500.00 Single Premium (Net of Initial Charge) 47,500.00 1. The
following outlines the steps in the calculating the number of units
bought after all the charges How does VUL Work? Basic
Computation
66. 66 We calculate the charges first. Initial Charge (5%
Single Premium) Php 2,500.00 Mortality Charge (1.6% x Single
Premium) 800.00 Because the initial charge is deducted before the
single premium is used to buy units, we calculate the remaining
single premium. Single premium Php 50,000.00 Less: Initial Charge -
2,500.00 Single Premium (Net of Initial Charge) 47,500.00 1. The
following outlines the steps in the calculating the number of units
bought after all the charges How does VUL Work? Basic
Computation
67. 67 How does VUL Work? Basic Computation No. of Units Bought
= Single Premium (Net of Initial Charge) /Unit Price = Php.
47,500.00/ 1.50 = 31,666.6667 Units The No. of units to cancel
(Mortality Charges) is: (Mortality Charges) = Mortality Charge/
Unit Price = 800.00/1.50 = 533.3333 Units 31,666.6667 - 533.3333 =
31,133.3334 units 2. The Single Premium (Net of Initial Charge)
will then be used to buy units 3. The Mortality Charge is deducted
by canceling units.
68. 68 How does VUL Work? Basic Computation Partial or full
withdrawal of units can be made by the policyholders at anytime
while their policy is in force. Withdrawals are made by selling (or
canceling) some or all of the units using the unit price at the
time of withdrawal. When full withdrawal of units is made, the
insurance policy is terminated. All policy benefits like the sum
assured guarantee and other supplementary benefits will cease.
Example: Suppose that the policyowner has 10,000 units and the unit
price is Php1.97. He wishes to withdraw (partially) Php 10,000 from
his policy. The following steps show how the withdrawal is made and
the remaining no. of units after the withdrawal. Withdrawal
Benefit
69. 69 How does VUL Work? Basic Computation Because the
withdrawals are made by selling units, the no. of units that needs
to be sold to fund the withdrawal is calculated. No. of Units to
sell = Withdrawal Amount Unit Price = Ps10,000.00 1.97 = 5,076.1421
units The remaining no. of units after Withdrawal is therefore: =
10,000 - 5,076.1421 = 4,923.8579 units Withdrawal Benefit
70. 70 No. of Units (cancelled) = Amount/Bid Price No. of Units
(bought) = Allocated Premium/Offer Price Fund Value = No. of Units
x Bid Price How does VUL Work? Bid Price = Offer Price (1- Spread)
or BO1S Offer Price = Bid Price/ (1-Spread %) or OB/1S Dual Pricing
Method
71. 71 How does VUL Work? Basic Computation Under the dual
pricing method, there are two prices quoted : - The price used to
create/allocate units (offer price) is higher than the price used
to cancel/cash-in/claim units (bid price). - One price can be
worked out from the other if the bid offer spread (Spread %) is
known using the formulas: Bid Price = Offer Price x (1-Spread%) or
BO1S Offer Price = Bid Price/(1- Spread%) or OB/1S Dual Pricing
Method
72. 72 How does VUL Work? Basic Computation Example: If the
offer price is 1.50 and the bid offer spread is 5%, the bid price
can be worked out as: Bid price = Offer Price (1-spread%) and =
1.50 (1-5%) = 1.4250 Dual Pricing Method
73. 73 How does VUL Work? Basic Computation A policyowner pays
a single premium of Php 50,000 and the offer price at that time is
Php 1.50. The companys bid-offer spread is 4% The insurance co.
deducts an initial charge of 5% and a mortality charge of 1.6%,
both as a percentage of single premium. The charges and fees are
deducted by canceling units after the whole single premium is used
to buy units. 1. We calculate first the number of units allocated
without charges: No. of units allocated = Single Premium Offer
Price No. of units allocated = 50,000 1.50 No . Of units allocated
w/o charges = 33,333.3333 units Dual Pricing Method
74. 74 How does VUL Work? Basic Computation 2. Because the
initial charge and mortality charge are deducted by canceling units
after the single premium is invested, we add the charges then
convert into units using the bid price (bec. the policyholder, in
effect, buying units to pay for the initial and mortality charges.
In the example, only the offer price is given. Thus, we have to
compute for the bid price using the given bid- offer spread. Bid
price = Offer price (1-Spread%) = 1.50 (1-4%) = 1.44 Dual Pricing
Method
75. 75 How does VUL Work? Basic Computation 3. We now calculate
for the number of units to cancel: Initial Charge (5%Single
Premium) 2,500 Mortality Charge (1.6% x Single Premium) 800
------------ Total Charges in peso 3,300 Total charges in units =
Total charges Bid price = 3,300 1.44 Total charges in units =
2,291.6667 units Cancellation of Units
76. 76 How does VUL Work? Basic Computation Now subtract the
total charges in units from the no. of units allocated for
investment. No. of units bought 33,333.3333 Total charges - 2,
291.6667 31,041.6663 units (after all charges) Cancellation of
Units
77. 77 How does VUL Work? Basic Computation To compute for the
accumulation of fund over a period of time Where the amount is X
after n years and it increases by i (interest rate), we will you
use this formula X (1+i) n Example A: What is PhP 20.00 after 10
years if it increases by 5% annually? Using the formula, X (1+i) n
20 (1+ 0.05) 10 = PhP 32.58 Accumulation of Fund Over a Period of
Time
78. 78 How does VUL Work? Basic Computation Example B: Over the
next 6 years, the offer price is projected to constantly increase
by 7% annually. Compute for the bid price and offer price after 6
years if the bid price now is PhP1.20 and the bid offer spread is
5%. Offer Price (present) = P1.20/unit (1-0.05) = 1.26 Offer Price
(after 6yrs) = x (1+i) n = 1.26 (1+0.07) 6 = P1.89 Bid price after
6yrs = 1.89 (1-0.05) = P1.80 Accumulation of Fund Over a Period of
Time
79. 79 Simulated Examination V.U.LInsuranceConcepts March 2015
version
80. 80 Test Taking Tips V.U.LInsuranceConcepts March 2015
version
81. 81 1. Be prepared, Read and Review. 2. Before the test list
everything you will need for it that is allowed. Like pencils/pens,
a watch, etc. 3. Review your VUL Simulated Exam & Reviewer.
Before the Exam Test Taking Strategies
82. 82 1. Read the directions carefully. 2. Get the big
picture. 3. Answer easy questions first. 4. Eliminate answers to
difficult questions 5. Review your test to make sure that you have
answered all questions. During the Exam Test Taking Strategies