Step 1: Determine the Type of Insurance Policy
Not all insurance policies offer a potential ROI. Life insurance policies, such as:
- Whole life
- Universal life
- Variable life
- Annuity contracts
typically offer a cash value component that can grow over time.
Step 2: Know the Policy’s Cash Value
The cash value represents the accumulated funds in your policy, which can grow through:
- Interest
- Dividends
- Investments
Step 3: Calculate the Gain
Subtract the total premiums paid from the current cash value to determine the gain:
Gain = Current Cash Value – Total Premiums Paid
Step 4: Calculate the ROI
Divide the gain by the total premiums paid, then multiply by 100 to express as a percentage:
ROI = (Gain / Total Premiums Paid) x 100
Example
Suppose you have a whole life insurance policy with:
- Current Cash Value: $15,000
- Total Premiums Paid: $10,000
Gain = $15,000 – $10,000 = $5,000
ROI = ($5,000 / $10,000) x 100 = 50% ROI
Additional Tips
- Consider the policy’s fees and expenses when calculating ROI
- ROI may not reflect the policy’s overall performance or purpose
- Consult with a licensed insurance professional for personalized guidance
By following these steps, you can calculate the ROI from your insurance policy and make informed decisions about your coverage.