The True Cost of an Insurance Policy for the HP-38E/C

This program is Copyright © 1978 by Hewlett-Packard and is used here by permission. This program was originally published in "HP-38E/38C Personal Finance Applications" book. This program was transcribed by Kris Collins.

This program is supplied without representation or warranty of any kind. Hewlett-Packard Company and The Museum of HP Calculators therefore assume no responsibility and shall have no liability, consequential or otherwise, of any kind arising from the use of this program material or any part thereof.

Overview

The true cost of an insurance policy other than term life insurance is rarely immediately apparent. The cost should include not only the premium payments but also the interest which could have ben earned on the cash value or "saving portion" of the policy.

The following HP-38E/38C program calculates this true cost, (YPT_t) per $1000 of protection and the interest rate paid on the savings elements of the policy.

Notes:

To calculate YPTt, you must assume some value for i; for example, the interest rate you could earn on a one-year savings certificate, after tax.
Similarly, to calculate i, you must assume a price per $100 for alternative insurance; for example, a low cost term policy of the one-year renewable type.
Even complex policies like minimum-deposit plans can be analyzed with this program. Use policy surrender values for cash-values, and the actual (after-tax) amounts for payments (premiums) and dividends.

References:

Joseph M. Belth, Life Insurance--A Consumer's Handbook, Indiana University Press, 1973, p. 234.

KEY ENTRY	DISPLAY	KEY ENTRY	DISPLAY
g P/R g CL P	00-	g EEX	19- 25 32
ENTER↑	01- 31	3	20- 3
1	02- 1	÷	21- 71
x⇔y	03- 33	÷	22- 71
%	04- 23	R/S	23- 74
+	05- 51	g Last x	24- 25 31
RCL 1	06- 22 1	×	25- 61
RCL 2	07- 22 2	RCL 7	26- 22 7
+	08- 51	+	27- 51
STO 6	09- 21 6	RCL 6	28- 22 6
×	10- 61	÷	29- 71
RCL 3	11- 22 3	1	30- 1
RCL 4	12- 22 4	-	31- 41
+	13- 51	g EEX	32- 25 32
STO 7	14- 21 7	2	33- 2
-	15- 41	×	34- 61
RCL 5	16- 22 5	g GTO 00	35- 25 7 00
RCL 3	17- 22 3	g P/R
-	18- 41

REGISTERS
R₀	R₁ P_t	R₂ V_t-1	R₃ V_t
R₄ D_t	R₅ F_t	R₆ Used	R₇ Used

Key in the program.
Initialize the program; press f CLEAR ALL.
Store the data:

        Key in the annual premium for policy year t and press STO 1;
        Key in the cash value at the beginning of th year and press STO 2.
        Key in the cash value at the end of the year and press STO 3;
        Key in the dividend for that year and press STO 4;
        Key in the face amount of the policy and press STO 5.

To compute the true cost per $1000 of protection in policy year t, key in the interest rate available to you elsewhere and press R/S.
To compute the interest rate paid on the savings element in the policy for that year, key in an assumed price per $1000 for an alternative low-cost policy and press R/S.
To compute the true cost and interest rate for a different policy year or for a different policy, go to step 3.

Example:

Consider an average $50,000 face amount cash value policy. The premium of $1,010 is due at the beginning of the year, and a dividend of $165 is received at the end of the policy year. A cash value of $3,302 at the beginning of the year grows to $4,104.

Assuming a 6% savings rate available elsewhere and that insurance protection could be purchased for $3.00 per $1.00, what is the true cost/$1000 and the rate of return on your savings?

Keystrokes	Display
f CLEAR ALL	0.00
1010 STO 1	1,010.00
3302 STO 2	3,302.00
4104 STO 3	4,104.00
165 STO 4	165.00
50000 STO 5	50,000.00
6 R/S	6.57	$, true yearly cost (YPT_t)
3 R/S	2.20	%, interest paid by policy

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