Reformed Presbyterian Minutes of Synod 1972

48 MINUTES OF THE SYNOD OF THEof facts conceming national insurance companies. The cost of this$7,500. coverage to age 65 to someone starting at age 26 would be$202.50 per year.By contrast it is possible for a man age 26 to buy a DecreasingTerm to Age 65 Policy with a coverage of $30,000 at ages 26,27, and28, decreasing yearly to $3,000 during ages 63, 64, and 65 for anannual premium of $85.60. The average annual coverage over the yearsis $15,816. of death benefit.The difference in cost between the Retirement Income PoUcy andthe Decreasing Term Policy is $116.90 per year. If this sum were investedat 4% for forty years, the resultant value would be $11,690.At 4V2% the value would be $13,075. Thus the cash value of the RetirementIncome Policy of $12,592 represents a return of something Uke4Vi% over and above the pure insurance cost while providing only abouthalf the average annual death benefit that is provided by the DecreasingTerm Policy ($7,500. against $15,816.) Any dividends thatmay be paid in addition to the cash value on the Retirement IncomePolicy would of course improve its performance to a degree, but thesecan only be estimated and are not guaranteed.As a mere matter of information, and not as an assurance that thehistorical performance of common stocks wiU continue it should benoted that an average overaU performance of 8% per year would causethe difference in premiums of $116.90 in forty years to become$32,706. With an approximate 3% in dividends and about 5% in growththis is not an unreasonable expectation. Good portfoUo managementmight even increase it. The difference between a potential return of$32,706 and the guaranteed cash value of $12,592 is $20,114,which represents the probable price of the guarantee - whUe theRetirement Income Policy provides only about one-half the deathbenefit averaged over the 40 year period.Thus neither as an investment medium nor as insurance coveragecan Retirement Income PoUcies be regarded as a bargain. Therefore, inthe case of all participants under age fifty-five who are insurable, it isrecommended that these policies be replaced by Decreasing TermPolicies terminating at age 65. The present policies would remain onthose fifty-five or over.As the face value of the decreasing term policy declines, it issupplemented by the increasing equity in the participant's pensionaccount so that the two together can constitute the survivor's benefitsup through the participant's age 65. After age 65 the pension itselfbecomes both the retirement income and the survivor's benefits. Onthis basis, it will not be necessary for the survivors to subsist on a lesseramount than the pensioner, since the same individualized pensionaccount provides for both.