The Retrospective Life Insurance Method: A Pedagogic Spreadsheet Application

31 Pages Posted: 25 Jun 2003

See all articles by Betty J. Simkins

Betty J. Simkins

Oklahoma State University - Stillwater - Department of Finance

David R. Lange

Auburn Montgomery - Department of Accounting and Finance

Date Written: May 13, 2003

Abstract

This paper describes an innovative Excel spreadsheet model, referred to as the Retrospective Method Spreadsheet, that has been successfully used in risk management and insurance, and personal finance courses to demonstrate the retrospective life insurance method. There are numerous pedagogic benefits of modeling life insurance funding in a spreadsheet application, especially when class time is limited. Our method provides an intuitive understanding of the sophisticated mathematical and statistical models common to actuarial science. The model is quite flexible and can be applied to life insurance policies (e.g., interest-sensitive whole life and universal life products) reflecting a variety of fee, expense, surrender charges, current interest rates or interest rate scenarios. Furthermore, current cost of insurance assumptions may be generated for any age, by gender, and for any proposed premium payment pattern. Given the interest rate sensitivity of the spreadsheet application, the paper also includes a discussion of how to utilize Monte Carlo simulation in investigating the impact of interest rate variability on insurance policy performance.

Keywords: Retrospective Life Insurance Method, Finance Pedagogy, Spreadsheet Applications

JEL Classification: A20, A23, G30

Suggested Citation

Simkins, Betty J. and Lange, David R., The Retrospective Life Insurance Method: A Pedagogic Spreadsheet Application (May 13, 2003). Available at SSRN: https://ssrn.com/abstract=410060 or http://dx.doi.org/10.2139/ssrn.410060

Betty J. Simkins (Contact Author)

Oklahoma State University - Stillwater - Department of Finance ( email )

336 Business Building
Stillwater, OK 74078-4011
United States
405-744-8625 (Phone)
405-744-5180 (Fax)

HOME PAGE: http://spears.okstate.edu/~simkins

David R. Lange

Auburn Montgomery - Department of Accounting and Finance ( email )

P.O. Box 244023
Montgomery, AL 36124
United States
334-244-3492 (Phone)
334-244-3792 (Fax)

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