### Marketing for Actuaries (LIMRA) - Chapter VII - APPENDIX I - MATHEMATICS OF COST COMPARISON APPROACHES

• 1/s(n|)*[sum([t]P(x)*(1+i)^(n-t+1)) - sum([t]D(x)(1+i)^(n-t)) - [n]CV(x)]
• P - prem, D - Div
• originally 4% in US, 5% in Canada, now 5% in both
• if i=0, Net Cost Index is result
• NAIC model REg Int Adj Payment index - same formula in book, but use 0 for yield
• gibbersih in book
Linton Yield Approach
• solves for a level effective int rate or yield
• compares a level prem policy to a term adn invest such that investement @ solved for rate = nth yer cash value
Internal Rate of Return
• commonly used w/ "leveraged" COLI policies
• only appropriate for sophisticated buyers
Basic Differences Among Cost-Comparison Methods
• Actuaries' Index is a "group-average" type adn other methods are "event-specific"
• "group average" - average cost to a group of PO
• main objection to "group avg" - employs probabilitys that represetn avg and therefore not applicable to many of the buyers who rely on the result
• main objection to "event specific" - likelihood of chosen event occurring is rather small