What is Internal Rate of Return on Death Benefit? (IRR)
For us at Life Insurance Nerds, IRR looks like this;
Death Benefit IRR is the rate of return of a life insurance policy, displayed annually, comparing the cumulative premiums against the death benefit obtained in a hypothetical future year. Depending on the premium paying strategy, DB IRR usually declines throughout the life of the policy. This measurement tool is most useful in evaluating the ultimate performance of a life insurance policy’s death benefit in comparison to other product designs or investment strategies.
Or put another way, IRR measures the interest rate at which the net present value of the total premiums paid equals the net present value of the death benefit.