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July 8th, 2012, 07:20 AM   #61
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Re: How to divide insurance payout fairly

Quote:
Originally Posted by thirst4answer
(1) Mr A paid the first 8 years life premium @$348.25 (on behalf of a relative); at year 9 he stopped
the premium but let Mr B to continue with the premium payment @$348.25 for a further 14 years,
then they got the payout from the insurance company because the relative (life insured person) passed away.

(2) Component of payout: face value $25,000, Paid up additions $10,455.55, others 457.77.
Yearly dividends received were fully used to buy paid up additions.

(3) Both Mr A and Mr B did not take out any money from the policy.
Any dividends earned were fully used to buy paid up additions.

(4) How much should Mr B get? How much should Mr A get?
22 annual deposits of 348 (total 7656) were worth 25000+10456+458=35914 at end or year 22.
That works out to an annual rate of ~12.828%.
And, IN THIS MANNER, the breakdown is like this:
Code:
      Monsieur A       |     Monsieur B
YR   PAID  INT. BALANCE|  PAID    INT. BALANCE
1    348     0    348  |
2    348    45    741  |
...                    |
8    348   462   4415  |
9      0   566   4981  |   348      0     348
10     0   639   5620  |   348     45     741
...                    |
22     0  2720  23920  |   348   1324   11994  :  23920 + 11994 = 35914
So sure looks like unfair to Mr. B, who paid more premiuns than Mr. A.

If we remove the $25,000 from the "interest", then we end with $10,914;
that works out to an annual rate of ~3.228%
The breakdown calculated as above ends with Mr. A = $4,871, Mr. B = $6,043:
Mr. B now ahead, and that's due to the lower rate...thus reduced compounding effect.

The 25,000 can now be (as example) paid out according to "premiums paid";
thus 8/22 * 25000 = 9091 for Mr. A, so 15909 for the now "smiling" Mr. B.

SO Mr. A gets 4871 + 9091 = $13,962 ans Mr. B gets 6043 + 15909 = $21,952;
CHECK: 13962 + 21952 = 35,914 .... and VOILA !

Where do I send my invoice?
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