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10. Dr. Sobo’s Commonwealth C-Group Term Policy
Effective December 31, 1991, Commonwealth issued a $1
million C-group term policy (certificate No. 6004474) on the life
of Dr. Sobo, age 39. The premium for the 10-month period from
December 31, 1991, through October 30, 1992, was $9,583.33, and
the cost of insuring Dr. Sobo for this 10-month period was
$2,079.88. The Lakewood Plan paid the 10-month premium, and, at
the end of that 10-month period, the conversion credit balance
was $7,784.83 ($9,583.33 - $2,079.88 + $281.38); the $281.38 is
the interest of 4.5 percent earned on the conversion credit
balance (($9,583.33 - $281.38) x 4.5% x 10/12 = $281.38)). None
of the conversion credit balance could have been transferred at
this time to the C-group conversion UL policy, upon conversion
thereto, because the C-group term policy was in its first year.
The premium for the next 12-month period, before any
experience refund, was $11,620. The policy was credited with an
experience refund of $20, and the Lakewood Plan paid the net
premium of $11,600 ($11,620 - $20). The cost of insuring Dr.
Sobo for the second year was $2,588.77.
On February 3, 1994, the Lakewood Plan paid Ms. Sobo $1
million as the beneficiary of this policy. Pursuant to the plan,
Dr. Sobo’s death benefit should have been $2,682,858 (prior-year
compensation of $329,185 multiplied by 8.15). The Lakewood Plan
had assets from which it could have paid Ms. Sobo more than the
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