## Sunday, December 12, 2010

### Yield on Life Insurance Policy

This article explains how to calculate the yield at different durations of a life insurance policy. You can use it to decide on whether to continue or terminate an existing policy.

John said...

Dear Mr.Tan KL,

thank you for sharing the calculation for life insurance yield which is very helpful.

Can you please clarify why the Pmt value in your example is taken as 3850? If pmt is input as yearly premium, it should have been 12x350=4200.
Do I miss out something.

Tan Kin Lian said...

I think that the insurance company charge \$3,850 for the annual premium and \$350 for the monthly premium. But the calculation did suggest that \$3,850 is the correct amount, so the figure of \$350 may be a red herring.

John said...

Dear Mr.Tan,

Thank you for the very quick reply.

I have a few life policies that are paid in monthly premium.

Trust that I should just multiply the monthly premium by 12 and then have this input as the pmt value to get the result of yield.

Is this correct way to use the spreedsheet you proposed?

Thanks for your kind sharing of expertise.

regards, john

Tan Kin Lian said...

to John
yes multipy by 12 and put the type as 0.5 (monthly).