Life Insurance Policy Disclosure for the 21st Century.

According to the rules of fair economic competition, financial markets can only work properly when consumers and product salespeople (agents) are appropriately informed. This article proposes a format for the presentation of effective and appropriate disclosure of material information about any type of life insurance policy. Broadly speaking, disclosure of a life insurance policy involves addressing the following conceptual matters: guarantees, uncertainty and participation, various tax and "structural" aspects, policy operational mechanics and measurements, and policyholder choices and their implications. The five fundamental cost components of any life insurance policy (six, if investment management costs are separated from administrative costs) are: sales, claims, administration, premium taxes, and capital charges. Policies with investment components require additional disclosures (i.e., returns, portfolio characteristics, etc.) and an explanation of their tax privileges' ramifications. Additional disclosure-related aspects are discussed. The possible impacts of the proposed disclosure format upon the industry's past, present, and future operations are also explored. [ABSTRACT FROM AUTHOR]

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