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Surrender value: The value for which any policy with cash value can be surrendered. In a participating Whole Life policy, the surrender value is typically equal to the cash value.
• Account value: Especially applicable to Variable Universal Life and Universal Life, the account value is equivalent to the policy's cash value before the deduction of surrender charges when determining the policy’s net surrender value.
Insurance at risk: The difference between the gross death benefit and the cash value. The net amount al risk should be largest in the early years, and progressively diminish as the insured gets older, corresponding to the smaller risk of dying in a given year when young and the higher risk of death in a given year as one gets older.
• Net return: Insurers selling and managing Universal Life and Current Assumption Whole Life policies will declare, from time to time, a policy cash value interest crediting rate subject to the guaranteed minimum specified in the policy. Both the declared and the minimum crediting rates are net of investment management expenses.
Fifty years ago, Whole Life insurance was a staple in the small array of policies available to protect one's family or business from economic loss at the time of death. As America's economy became more complex, and as technology and economic necessity encouraged evolutionary product offerings, amounts of life insurance-and the types of policies purchased have transformed. Slightly less than $50 billion of life insurance was purchased in 1955; $1.6 million was purchased in 2003.
The classic circumstance of the ideal insurable risk is when the potential loss has extreme financial consequences but the probability of such loss is low. The economic model is that an insurance company can collect a relatively small premium from the many who have similar risk profiles, earn a reasonable profit, and have sufficient reserves to cover the liability should it occur. Seemingly contrary to that model, life insurance is a contractual arrangement in which the policy owner makes periodic payments to a life insurance company on behalf of an insured.
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