LifePoint pools the donated policies of each charity into a single fund of manageable assets. Pooling large numbers of policies allow for earlier and more predictable distributions to all of LifePoint's charitable beneficiaries. When a policy is donated to LifePoint, the donor designates a charity that he would like to see benefit from the proceeds of the policy. The charity is credited with a percentage interest based on the face amount of the policy donated.
Charity Percentage Interest Example
Each charity's Percentage Interest is equal to their percentage of the donor-designated death benefits in the policy pool. Distributions to each beneficiary are determined by its Percentage Interest. This percentage interest is reconciled annually. Once distributions begin, distributions will not be less than 70% of the Death benefits received by LifePoint. Here is an example:
Assumptions:
- By year 10, the total policy pool equals $637M in life insurance in-force and specific charities are designated to receive distributions from the pool.
- Charity B is the donor-designated recipient of $75M in total face amount.
Charity B's Percentage interest Calculation
$75M/$637M = 11.77% Percentage Interest is credited to Charity B.
Distribution:
- In year 10, the Board authorizes a $21.56M distribution
- Charity B will receive $2,537,612 (11.77% of the total $21.56M in total distributions)
It’s been said that there are two things guaranteed in this life – death and taxes! Taxes are easily projected. Predicting the death of a single individual, unfortunately, is problematic. In actuarial science, a mortality table (also called an actuarial table) is a table, derived from historical mortality data, which identifies the actuarial probability of death in any given year for individuals at every age.
From this starting point, a number of statistics can be derived:
- The probability of surviving any particular year of age
- The proportion of the original birth cohort still alive
- Estimates of a cohort’s longevity characteristics
Mortality tables are usually constructed for men and women separately because of their substantially different mortality rates. Other characteristics, such as smoking status, may also be used to delineate mortality risks between groups.
The mortality tables produced by various organizations such as the Social Security Administration (SSA Tables) or The American Academy of Actuaries (VBT 2008 Tables) reflect the actual death rates that occurred within their historical data group. Given a large enough pool of individuals, it can be accurately predicted how many will die within a particular time frame. As it relates to LifePoint or any insurance-linked portfolio, pooling large numbers of policies on disparate individuals leads to more accurately predicting when death benefits will be realized and allows for earlier and more predictable distributions to all beneficiaries. This predictability is simply not possible with smaller numbers of insureds. This is why the LifePoint Charitable Endowment is organized to combine donated policies from multiple charitable sectors. Simply put, sourcing policies across multiple charities creates a large enough pool of lives to mitigate longevity risks and generate greater and more predictable distributions to our donor-designated beneficiaries.
VBT 2008 and SSA Mortality Tables
The most recent mortality table, the Valuation Basic Table 2008 (VBT 2008), is an independent mortality study conducted by the American Academy of Actuaries and the Society of Actuaries. This study measured the mortality of a data group comprising 695,000 individuals whose deaths occurred between 2002 and 2004. Thirty five (35) life insurance carriers provided information related to their initial medical underwriting on these individuals. Carriers also provided information related to their standard and preferred risk classification structure. The study found that recently medically underwritten individuals had a lower incidence of death, in the early years, than those of the general population. The VBT 2008 RR 160 mortality table assumes that all individuals were recently underwritten by traditional industry underwriting standards and were classified as "standard" mortality risks. Since most donors will not have been recently underwritten for new life insurance this data set is extremely conservative as compared to the health status of the general population.
The Social Security Administration mortality table (SSA) is used as the basis of the normal mortality scenario for the LifePoint Charitable Endowment pro-forma. This table reflects the actual mortality experience of the United States general population as recorded by the Social Security Administration. It distinguishes only between the mortality experience of males and females and does not specifically differentiate between smokers and non-smokers.
