A METHOD FOR CONSUMER VALUATION OF LIFE INSURANCE POLICIES BY TYPE: COMMENT

Abstract

IN A RECENT issue of this Journal, Professor Solberg presented an interesting paper describing a method of evaluating a insurance policy from the viewpoint of the consumer.' He states in effect that the total value of a policy is the sum of the value of the life benefits and the value of the death benefits. It is the purpose of this communication to suggest a modification of Professor Solberg's approach in order to incorporate certain significant refinements.2 A mathematical presentation of the modification is contained in the appendix to this communication. In valuing the life benefits under a insurance policy, Professor Solberg computes the present value of the cash value at retirement and indicates that no value need be placed upon the cash values in intervening years. Actually, it would seem far more realistic to assume that the policyowner will view the cash value of his insurance as an asset during the entire accumulation period. This does not mean that the policyowner will use the asset during that period but rather that he will recognize its existence when, for example, he constructs a balance sheet showing his personal financial condition at the end of each year. The fact is that the policyowner may indeed be forced to use the cash surrender or loan privi-