Calculating Funding Premiums for Universal Life Insurance

This paper provides a brief overview of the most commonly used methods for calculating the level gross premium required to achieve a specific funding target under a typical universal life product design. The first method described utilizes summation techniques from numerical analysis to derive a general accumulation formula. Manipulating this formula leads to an expression for the modal gross funding premium. The second method uses a partial Taylor series expansion to derive a variant of the Newton-Raphson iteration formula, which can be shown to provide second-order convergence to the funding premium. Other iteration methods providing first-order convergence are also described. A more detailed discussion of these methods and their applicability can be found in the author’s paper “Calculating Funding Premiums for Universal Life Insurance, with Examples,” scheduled to be published in the 1999–2000 volume of the TSA Reports.