Marketing for Actuaries (LIMRA)  Chapter VII  APPENDIX I  MATHEMATICS OF COST COMPARISON APPROACHES
IntAdj Cost Index
 1/s(n)*[sum([t]P(x)*(1+i)^(nt+1))  sum([t]D(x)(1+i)^(nt))  [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
Actuaries Index (Canada)
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 CostComparison Methods
 Actuaries' Index is a "groupaverage" type adn other methods are "eventspecific"
 "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

Copyright © 2004 Steve Welander.
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