How Do Life Insurance Cost Indexes Work?

It isn’t always easy to accurately compare costs from one life insurance plan to another. Just relating the prices of one premium to another isn’t quite enough. The policies may have vastly different stipulations, even though the actual costs may be similar. The premiums are subject to change in some policies but not in others. In order, to truly determine what the actual cost of any given insurance policy, you need to adjust the value of the policy, as it relates to the passage of time. Any accurate method of cost indexing must account for inflation. The money received from the policy years down the road will not have exactly the same value as it does in the present.

Almost every state has introduced the interest adjusted form of cost indexing. This method is considered ethical and is endorsed by the NAIC(National Association Of Insurance Commissioners). This method will adjust the value of payments based on when they are received. This allows a much more accurate way to compare different policies to each other. However, this is not the only index. While the index mentioned above is concerned mostly with the net payment, the alternate index (the net surrender index) will factor in the cost of any given policy, if it is surrendered. Practically speaking, it is important to take a look at both indexes for the policies in question. The policy that has the lowest overall cost index is the one which provides greater value.