Overview

Main Menu Name: Net Clear

Calculates the "net clear death benefit" from a life insurance policy and the net proceeds payable in each year. It also highlights the net clear death benefit at the expected age of death that is automatically calculated based on life expectancy tables.

In this article:

• Background
• Why should I use this calculator?
• Getting Started
• Entering Data
• Results

Background

The net clear death benefit is the amount of policy proceeds payable upon the death of the insured, minus the accumulated after-tax outlay at interest. It shows the excess proceeds over and above the client's outlay with a cost of money factor added in.

For example, a 45-year old client wants to purchase a universal life insurance policy. He wants to pay ten level premiums, have a death benefit of $100,000 plus the cash value until age 65, and then switch to a level death benefit. His expected age of death is 83. The accumulated premium plus interest at 6.5% is $79,171. The death benefit payable is $131,928, yielding a net clear death benefit of $52,757.

It can also be likened to a net present value calculation. If the client accumulates the out of pocket cost at a rate of 6.5%, he would have $89,798. The policy provides a gain of $42,130. As an investment, the client has met the goal of growth at 6.5% plus a gain of the net clear death benefit.

Why should I use this calculator?

• To plan for the financial security of survivors.
• To evaluate the attractiveness of different life insurance policies.
• To determine the most efficient period of time over which to make premium payments on a life insurance policy.

Getting Started

The net clear death benefit is the amount of policy proceeds payable upon the death of the insured, minus the accumulated after-tax outlay at interest. It shows the excess proceeds over and above the client's outlay with a cost of money factor added in.

For example, a 45-year old client wants to purchase a universal life insurance policy. He wants to pay 10 level premiums, have a death benefit of $100,000 plus the cash value until age65, and then switch to a level death benefit. His expected age of death is 83. The accumulated premium plus interest at 6.5% is $79,171. The death benefit payable is $131,928, yielding a net clear death benefit of $52,757.

It can also be likened to a net present value calculation. If the client accumulates the out of pocket cost at a rate of 6.5%, he would have $89,798. The policy provides a gain of $42,130.As an "investment," the client has met the goal of growth at 6.5% plus a gain of the net clear death benefit.

Entering Data

1. After-Tax Accumulation Rate:  Enter the after-tax interest rate.
2. Issue Age:  Enter the age of the client when the universal life insurance policy is purchased.
3. Annual Net Outlay:  Enter the annual after-tax premium cost for the client.
4. Net Death Benefit:  Enter the annual net death proceeds from the insurance policy.

Results

The program takes the net after-tax outlay and accumulates it at the specified interest rate. It also takes the net death benefit and subtracts the accumulated after-tax outlay to produce the net clear death benefit. The Benefit Schedule tab highlights the net clear death benefit at the expected age at life expectancy.