Australia Insurance/Annuity help

[Whyme_jj]

Your input/opinion/suggestions would be appreciated - how to divide???
1. Mr A paid 8 yearly premium @$348.25/year (25%*1393) from year 0 to 8 (total=$2,786) inclusive for a relative Mr C (who paid 75%*1393).
2. Any yearly dividends received by Mr A were used to buy additional amounts of participating insurance called Paid up additions (PUA). The cash value of any PUA will not be less than the dividend used to purchase the dividend additions.
3. On year 9 because of financial reasons, Mr A asked Mr B to help with premium payment and left all yearly dividends and yearly PUA in the fund to accumulate future dividends and PUA from year 9 to year 22.
4. So, from year 9 to year 22 inclusively, Mr B helped A pay the same premium $348.25/year (total=$4,875.5). Any yearly dividends received by Mr B were used to buy additional PUA similar to item 1 above. There was no contract or agreement made at year 9 as how to divide amount in future between them.
4. At end of year 22, the insurance made a settlement payment because Mr C (the life insured) passed away.
5. The total payment was $35,913.33 (after taken out Mr C 75% portion). That amount includes Face Value = $25,000 (the insured amount); PUA = $10,455.55; Interim dividend = $14.92; interest = $442.86 (accrued from date of application to date of payment).
6. To be fair to A and B, how much should A get? How much should B get?
7. As face/insured value $25,000 would not change with time (you got the amount even if you just pay for 1 year or 80 year provided the "accident" happen) so I would calculate it without the time factor, whereas other items such as dividends, PUA would change with time, so I would calculate it first to get how much each contributed/gained at year 22, then use this amount as a ratio to their sum and multiple it to the face/sum insured to get how A or B should get.
8. Should the face value ($25,000) be separately calculated or should it be calculated as a lump sum with other payment(pua, interim dividend & interest)? What is your opinion?
Please help. Your opinion/suggestions would be appreciated.
You can email me at: (e-mail address removed)

 

[Whyme_jj]

How do divide?

As everyone is shy to put their opinion, then let me start with what I have done...
I thought first calculate the interest rate for 22 years, yearly payment of $348.25, payment at beginning of the year, present value zero with trial and error. So, I started with interest rates say 11% and 12% and I got the future values of 31,394 and 36,079.71 but I wanted to get the future value of $35,913.33 so I assume the interest rate to be X and solve it via interpolation and got X = 0.1196.
Then I applied it back with 8 years to get Mr A amount and the remainder for Mr B.
My main concern was the "face value" or the insured value that was static throughout the years. Whereas the rest was dynamic (they change with time due to compounding feature). You get the insured/face value if and only if something happen (accident). Hence, I am of the opinion that it should be excluded in the initial calculation to get Mr A and Mr B entitlement then applied their share to the face/insured value.
Please help. Your opinion/inputs would be appreciated. Thank you.
Whyme.jj

 

[bklynboy]

I would not use your method as a death benefit is not a "return" but a contractual amount for paying the premium (dont view insurance as an investment) and distorts the discount rate to use. I do agree we need to consider what value was paid in by each party and adjust for time value.

Using a time value approach, I would use a discount rate that is close to the crediting rate in the policy as used to determine the PUA. I assumed 5% as the average over the life but you can check and see what is a better rate to use. Using this approach I come up with roughly 49.1% for A and 50.9% for B as A paid the earlier dollars which are worth more.

I come up with the result by calculating the FV of an annuity paid at the beginning of each period which is a total value of 14,080 for 22 years. I break this down by A and B and come up with the above split. I cand send you the work file if you need to see the actual calcs.

 

[Whyme_jj]

How do divide?

I lost document that was posted yesterday. Hence, I repost here...
I agree with you that insurance should not be treated as investment. Yes,please email your calculation to my email address: (e-mail address removed).

 

[Whyme_jj]

How do divide?

Hi bklynboy, You mentioned earlier that "I cand send you the work file if you need to see the actual calcs", so without inventing another wheel, I would appreciate it if you could email your work file to my yahoo email address. How would you or anyone else calculate the insured value for Mr A and B?
Can anyone else help me please? Your opinion/input would be appreciated. Thank you. Whyme_jj

 

[bklynboy]

I am attaching here so others can comment if my logic is faulty.

 

[Whyme_jj]

Any actuary, life insurer/broker/financial math expert here? Please help and show me for input/opinion. Thank you.