Insurance Policies and Annuities

[Wm]

Fri, 20 Feb 2015 11:57:03 <54E7756F.2030107 at gmail.com>  David Carlson
<david.carlson.417 at gmail.com>

>The thread about the Canada Pension Plan reminded me that I have a
>similar question

ditto, I've never quite decided if I'm dealing with my UK based plans
the best way.

As an aside I had a quick stab of jealousy looking at the CPP as it
looked rather nice in comparison to our dog's dinner (dunno about other
nations).

>about whole life insurance policies and annuities, both
>of which often have large present values and may have loan value or
>scheduled payouts similar to pensions, but with a real current value,
>future value, etc.

I'm not sure the life insurance / annuity / pension distinction is going
to translate well.  I have a pension that is (I think) a wrapper for an
insurance policy that has small insurance element the bulk of the money
being in turn split in two, the split accounts being separate legal
beasts that both invest in the same underlying mutual fund (unit trust
here).

What do I call *that* when talking to an Australian or Indian person?

>I currently track the cash value of my insurance policies as assets with
>periodic adjustments to income called increase in insurance value, to an
>expense called cost of insurance and to another expense called
>administrative expense.  My insurance companies actually give me this
>information either yearly or monthly in one case.

for e.g. I've got

Assets
  PensionA (Type=Mutual, Sec=fundMAS)
    Protected Rights Account (inherited from above)
    Retirement Savings Account (ditto)

other UK people may recognise this sort of structure.

Once a year sometime around my birthday (the pension bit) I get two
letters giving me the value of the two accounts in terms of

price units value

fun bit is units in one are used to buy units in the other and nothing
ever adds up because costs, management fees, etc are taken out of the
units.

I've ended up with something similar to you in that I use Income and
Expense accounts to adjust the known values from last time to this time
and the Price Editor to update the underlying mutual fund value a few
times a year.

One thing that I might be doing differently (and may not be relevant if
you don't have the split account thing) is that I use Trading accounts
which provide the padding between the money and the asset. Before I
turned them on I couldn't make any sense of this at all.

>I am now trying to track an annuity which will become one part of my
>retirement portfolio, and like a pension it will sometime in the future
>be a decreasing asset and an income source for me,

This is where, as I suggested above nomenclature becomes confusing, I
thought you invested in a financial something in order to *buy* an
annuity at some time in the future which then paid out over time, i.e.
is what you have now an investment or an annuity?  or perhaps an
investment tied to a future annuity purchase because that provides some
tax relief?

it all gets weird :)

> but right now it has
>a significant (and hopefully increasing) present value, which I think I
>should call an asset in my net worth report.

I'd certainly say you and I both have assets but 100 of this sort of
asset isn't the same as 100 cash in pocket.  Not just in terms of
current vs long in realisable time but in terms of realisable value.

Q: in two scenarios you live for a 100 years vs 10 how much was your
annuity purchase fund worth as an asset on the day before you bought the
annuity? :)


Important question: What are you using as your net worth report?


>My question is how do others track these items in GnuCash?

Things that relate to a real world asset should, I suggest, be recorded
as an asset because you've got a measurable bit of it even though how
much it is worth now or in the future may be unclear.

Tracking them without Trading accounts never worked for me.

I too am interested in other people's thoughts on this.

-- 
Wm...