What Is the Cash Value?
I have several whole life policies on members of my family, and I get brief statements on each of them once a year. My statement shows the current dividend, the paid-up additions (PUA) being purchased with that dividend, and the total PUA balance.
From this information, is there any way for me to determine the current cash value of the policy? Alternately, is there an easy way to get that information?
+ Mark
Cash Value
Ah yes... the question most asked by ANYONE who receives the dividend statement. What is the VALUE, Death Benefit, and just what is a PUA?
Let's explain the easiest first:
Current dividend- This is the annual dividend that is being applied to your policy this year.
Paid Up Additions (PUA's)-Your dividend is going out and purchasing additional whole life life insurance (basically another little policy)that adds to the face value of the policy. Let's say you have a $5000 policy when you began. This year's PUA's were $87.00. Your death benefit is now $5087. Essentially, it grows every year as the PUA's increase the value of your policy.
Cash value--because dividends are paid only once per year and each policy was taken out at a different time, it depends when you look. I can provide this information to the penny at any time.
So There's No Way To Calculate It?
OK. The Face Value + PUA = Death Benefit was pretty easy. So, there's no way to calculate the cash value from what's on the statement, then? If you know your dividend on the date that it's paid out, is it possible to figure out, even roughly, the cash value that dividend was paid on?
Do PUA's contribute at all to the cash value?
I never really gave this any thought until I looked at the statement we got on a Discoverer policy which had a line item for "Cash Value". Can you use your influence to get them to add that info to the statements for our whole life policies?
+ Mark
Yes, but not really....
No way is too broad a statement--it's just not easy. I prefer to use the illustration I have available because it show how things happen over time given the current dividend, which CAN change. I'd have to see your statement but GENERALLY there are 2 cash values for “whole life” life insurance. One is guaranteed cash value and one is actual cash value. It could also be showing just the cash value of the applied dividend for this year. I’d need to see it specifically and compare it to the actual illustration of the policy. It also depends on how you treat your dividend. (There are 3 options there alone) AND your type of policy. For example, Discoverer uses it’s dividend to convert term APB to whole life each year and then pays additional dividend on the whole actual cash value every year going forward. As cash value increases, the dividend increases as well. Please note that your death benefit on a Discoverer does not change until the APB (term portion)is converted to regular whole life. That's why Discoverer costs less than regular whole life. It's a small whole life policy with a large term policy attached to it that converts the term portion to a bigger whole life policy using the dividend to pay the difference. It can be difficult to calculate.
Paid up additions are a little paid up whole life policy that we pay dividend on as well, but they don't directly translate to cash. You can sell your PUA's back for cash but they are not like a $1.00 of coverage for $1.00 in cash. More like $10.00 of cash is represented by $40.00 in PUA (insurance)((just for the sake of explanation here-not an exact figure)).
In regular whole life or 20 pay whole life, Cash value and death benefit increase directly over time as the dividend is used to buy paid up additions (PUA’s) adding to the face value of the policy.
(releasing the air lock as we come down....)
As I said, they leave that to us to give our clients with the illustration software. It's better and gives the whole picture.