Rates of Return on the Investment Differentials between Life Insurance Policies

This article considers the premium, dividend, and cash value data of five life insurance companies to examine the rates of return that the purchaser of lower premium policies must receive in noninsurance investments in order to be as well off as he would be if instead he had put the same total amount of funds into higher premium policies. The examination is made under varying conditions. The policies considered are 20 year endowment, 20 year pay, ordinary life, and 20 year term. The use of the plural "rates" in the title of this paper is intentional. It is not practicable to postulate any one rate of return for the rates will vary between companies, and as will be seen, the rates are not even uniform among policies within a company. Of course, the rates will also vary if one varies the inv7estment time period, but the variation of yield with the time length of inv7estment is a well recognized economic phenomenon.1