“Effect of Deductions” is a column found in insurance policies with cash values. What exactly is “Effect of Deductions”? It can be summed up in an equation:
Value of Premium Paid – Total Cash Value = Effect of Deductions
Both “Value of Premium Paid” and “Total Cash Value” will be calculated based on a projection (the common ones being 3.75% and 5.25% for traditional participating policies). For example, after five years with an annual premium of $1,273 projected at 5.25% p.a., the Value of Premium Paid will be $7,440 ($1,273 ever year compounded at 5.25% per annum for 5 years).
The Total Cash Value will likely be much less than this amount. A sample Benefit Illustration puts it at $4,325 at the end of the 5th year.
The Effect of Deduction is hence: $7,440 – $4,325 = $3,315
The difference in the two values is due to various amounts of money being...... “Effect of Deductions” is a column found in insurance policies with cash values. What exactly is “Effect of Deductions”? It can be summed up in an equation:
Value of Premium Paid – Total Cash Value = Effect of Deductions
Both “Value of Premium Paid” and “Total Cash Value” will be calculated based on a projection (the common ones being 3.75% and 5.25% for traditional participating policies). For example, after five years with an annual premium of $1,273 projected at 5.25% p.a., the Value of Premium Paid will be $7,440 ($1,273 ever year compounded at 5.25% per annum for 5 years).
The Total Cash Value will likely be much less than this amount. A sample Benefit Illustration puts it at $4,325 at the end of the 5th year.
The Effect of Deduction is hence: $7,440 – $4,325 = $3,315
The difference in the two values is due to various amounts of money being......
