CFA Level 3 | Private Wealth Management: Surrender Cost Index

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CFA Level 3
Topic: Private Wealth Management
Reading: Risk Management for Individuals
The surrender cost index is the cost of life insurance per $1,000 face value. It allows consumers to compare the cost of life insurance between different insurance companies. It assumes that the insured person will surrender the policy at the end of the period and receive the projected cash value.
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[@michailperdikis8946]

how much more helpful it is to see it with graphs. Makes it much more understandable and intuitive. Kudos!!! Sitting for lvl3 in 6 days :)

[@FabianMoa]

All the best with your exam, Michail!

[@michailperdikis8946]

@@FabianMoa was clearing my mail box and I came across this reply notification. Good ol' memories! Now I am a CFA charterholder and got a new job as a Junior PM in a big credit fund!!! So happy I came across your material!

[@FabianMoa]

@@michailperdikis8946 Hi Michail, It's fantastic to hear from you! Congratulations on becoming a CFA charterholder and landing the Junior PM role at the credit fund. That's a huge achievement! I'm thrilled that my material played a part in your journey. Wishing you continued success in your new role.😁

[@anggaprahadi9840]

this is a lifesaver, thanks for making it so concise

[@freddytang2128]

Thanks! the textbook list 5 steps that make it seem complicated. I wish they would just say "same as net payment index, just one extra step here"

[@FabianMoa]

Glad it helped, Freddy!

[@ivyg9827]

THANK YOU!

[@nichapatthanesnirutsai497]

Thanks for this video and many more on the CFA Level 3 series, very helpful 👍🏻 Can you do a video on how to calculate a Life Insurance Need Analysis? Struggled with this one and think that it would be great if you could help…

[@FabianMoa]

I'm on a long holiday. Will probably do one when I'm back. Stay tuned!

[@nichapatthanesnirutsai497]

@@FabianMoaMany thanks for your reply, much appreciated and will stay tune for the video indeed! 🎉

[@BboyGraphicx]

Thanks so much that we really helpful

[@FabianMoa]

You're welcome, Tich!

[@wongraymond]

how do i know the discount rate of the policy as it was not stated in tjhe proposal ? will it varies from time to time ?

[@FabianMoa]

The discount rate used in calculating the surrender cost index is typically determined by the insurance company issuing the policy. However, industry standards and guidelines, such as those provided by the National Association of Insurance Commissioners (NAIC) or similar regulatory bodies, may influence the selection of an appropriate discount rate. These standards ensure consistency and fairness in the calculations, allowing for more reliable comparisons between different policies and insurance providers.

[@johncena3216]

Hi Fabian, any reason we can not also use the alternative shortcut mentioned in the net payment cost calculation?

[@johncena3216]

Net payment Y0 is 22,000-4,245 = 17,754 as in Net Payment Index calculation. Also FV 30,000 at year 20 is BGN PMT of 769.37 per year. Adding the two figures is annual payment of 16,985.

[@FabianMoa]

You can.