Effect of Deduction

A policyholder sent to me a whole life policy (premiums payable for 10 years) taken for a child age 19, covering a sum assured of $50,000.

The Effect of Deduction is as follows:

         Total          Cash Value            Effect of
        Premium     Gtd    N-Gtd     Total    Deduction
10 yr   $15,980   $14,050   $1,523  $15,573   $5,830
20 yr   $15,980   $18,400   $6,887  $25,287   $10,416
30 yr   $15,980   $23,700  $15,723  $39,423   $20,132

After paying the premium for 10 years, the cash value is still less than the premiums paid. The effect of deduction is about $5,830, This is the money that could have been earned by investing the premiums.

The effect of deduction over 30 years is about $20,132. If the parent had bought a level term assurance for the child for 30 years, the total premiums plus interest would be about $3,500. This is cheaper than the $20,132 (i.e. "effect of deduction") charged under the life insurance policy.

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