Use the information from Table 7 to calculate the

costs to service and maintain a policy for each product. Assume that AXE Life has defined the cost to service and maintain a policy as the customer service costs, call center costs, and costs to adjudicate and pay claims

Cost to service a life insurance policy. The process requires:

-Managing the policies (serve customers and inforce management)

-Respond to customer inquiries

-Information Technology support (life insurance systems)

Might need to use Control +

Table 7: Cost to Service Life Insurance Policies Function Variable Fixed Total Characteristics of Costs Customer Service Management Manage customer service support of existing policies Salaries & Benefits 254,750 495,250 750,000 Hourly, part time considered variable; others are within a range of 1/-20% of current levels Supplies 21,520 21.520 Fixed within range of +/-20% of current levels Depreciation - Furniture 55,425 56,425 Fixed within range of +/- 20% of current levels eased PCs 47,500 47 500 Fixed within range of +/-20% of current levels Allocated Runt 92,500 82.500 Fixed within range of +/-20% of current levels All Other 199,305 199,305 Fixed within range of +/- 20% of current levels Total $ 276,270 $879,980 $1,156,250 Call Center: Respond to customer inquiries Salaries & Benefits 415,150 42,520 457,670 Hourly, part time considered variable; others are within a range of +/- 20% of current levels Supplies 21,514 21,514 Vary with applications Depreciation - Furniture 62,520 62,520 Fixed within range of +/-20% of current levels Leased PCS 55,125 55.125 Fixed within range of +/-20% of current levels Allocated Rent 90,500 90,500 Fixed within range of +/-20% of current levels All Other 222,928 972 928 Fixed within range of +/-20% of current levels Total $436,664 $250,665 $910,257 Lite Inforce Management Provide service to all existing policies (changes in beneficiary, address, questions) Salaries & Benefits 514.250 120,125 634 375 Hourly part time considured variablu; others are within a range of +/-20% of current levels Supplies 44,450 44.450 Vary with policies Depreciation - Furniture 71,500 71,500 Fixed within range of +/-20% of current levels Teased PCs 61,750 61.750 Fixed within range of +/-20% of current levels Allocated Rent 95,120 95.120 Fixed within range of +/- 20% of current levels All Other 208,280 208.240 Fixed within range of +/-20% of current levels Total $558,700 $348,495 $1,115,475 Claims Management Manage claims process Salaries & Duncfiis 417,500 215,250 632,750 Hourly, part time considered variable; others are within a range of +/- 20% of current levels Supplies 21,250 21,250 Vary with policies Depreciation - Furniture 91,742 81,742 Fixed within range of +/-20% of current levels Leased PCS 91,250 91.250 Fixed within range of +/- 20% of current levels Allocated Rent 111,500 111,500 Fixed within range of +/-20% of current levels All Other 162 518 Fixed within range of +/-20% of current levels Total $438,750 $499,742 $1,101,010 Claims Adjusters: Adjudicate claims Salaries & Benefits 607,150 333,525 940,675 Hourly, part time considered variable: others are within a range of +/-20% of current levels Supplies 41,525 41,525 Vary with policies Depreciation - Furniture 101,525 101,525 Fixed within range of +/-20% of current levels Leased PCs 100,752 100,752 Finod within range of +/-20% of current levels Allocated Hant 117,850 117,850 Fixed within range of +/-20% of current levels All Other 112,673 112,673 Fixed within range of 1/-20% of current levels Total S648,675 $653,625 $1,415,000 Table 7: Cost to Service Life Insurance Policies (continued) Function Variable Fixed Total Characteristics of Costs Life Claims Support: Support claims adjusters, process and issue all claims checks Postage & Mail Costs 91,425 91,425 Vary with claims paid Salaries & Benefits 481,500 112,525 594,025 Hourly, part time considered variable; others are within a range of +/- 20% of current levels Supplies 41,525 41,525 Vary with applications Depreciation - Furniture 91,250 91,250 Fixed within range of +/-20% of current levels Leased PCs 77,141 77,141 Fixed within range of +/- 20% of current levels Allocated Rent 99,750 99,750 Fixed within range of +/- 20% of current levels All Other 23,788 232,788 Fixed within range of +/- 20% of current levels Total $614,450 $613,454 $1,227,904 Life Insurance Systems: System and IT personnel that supports life insurance policies Salaries & Benefits 115,400 411,500 526,900 11,750 Supplies Depreciation - Furniture Leased PCs Allocated Rent 66,271 77,141 61,250 471,938 $1,088,100 11,750 66,271 77,141 61,250 471,938 $1,215,250 Hourly, part time considered variable; others are within a range of +/-20% of current levels Vary with applications Fixed within range of +/- 20% of current levels Fixed within range of +/-20% of current levels Fixed within range of +/- 20% of current levels Fixed, mostly system maintenance charges All Other Total $127,150 Life Claims Systems: System and IT personnel that support life insurance claims Salaries & Benefits 115,400 372,500 487,900 33,250 Supplies Depreciation - Furniture Leased PCs 33,250 88,815 91,250 91,475 437,160 $1,229,850 88,815 91,250 91,475 437,160 $1,081,200 Hourly, part time considered variable; others are within a range of +/-20% of current levels Vary with applications Fixed within range of +/- 20% of current levels Fixed within range of +/-20% of current levels Fixed within range of +/- 20% of current levels Fixed, mostly system maintenance charges Allocated Rent All Other Total $148,650 Table 2. Panel C: Product Allocations by Department, Revised Allocations Sales Service IT Total Product Whole Life Series 1 Marketing $157,635 Finance $300,011 All Other $194,161 $584,062 $3,186,824 2,945,549 Whole Life Series 2 $1,290,124 1,155,822 1,159,683 458,626 141,994 312,748 215,267 Variable Life Series 1 1,307,471 342,067 389,270 391,954 Variable Life Series 2 2,238,117 443,660 Term Life 2000 244,710 357,415 142,181 164,365 186,295 $660,831 661,092 662,657 663,911 660,064 660,891 659,410 802,403 659,270 203,902 244,317 1,476,626 1,653,389 522,565 683,788 2,076,504 804,511 132,048 199,017 4,105,859 5,571,684 3,245,164 2,432,906 2,611,487 Term Life New Horizon Flexible Life 171,900 79,019 Secure Life 700,018 447,075 394,015 1,153,987 318,840 1,706,385 8,255,685 6,523,542 4,239,529 12,511,268 722,040 642,840 350,779 375,431 315,451 1,019,206 453,580 641,752 831,076 3,835,669 1,880,550 1,832,987 6,182,754 1,662,587 936,802 784,688 661,673 5,226 6,402,505 $30,700,125 1,108,043 205,039 1,630,254 133,933 286,676 1,767,557 611,271 403,131 333,724 197,700 Brokerage Annuity Fixed Annuity, Broker Happy Life Annuity Bankers Choice Fixed Annuity, Bank Ind. Fixed Annuity 1 Ind. Fixed Annuity 2 Ind. Fixed Annuity 3 Life Style Annuity Total Allocated 537,723 685,205 837,212 1,181,475 180,019 164,320 87,150 803,455 639,859 646,664 652,790 653,015 641,612 653,761 $11,424,525 542,029 35,638 511,823 $15,750,225 848,223 290,755 884,688 $8,624,567 1,199,720 275,968 1,260,144 $10,500,830 3,539,366 3,407,226 3,969,907 4,068,980 1,336,349 10,573,797 $82,525,122 860,875 $5,524,850 in millions e-Apps Claims Surrenders Annuity Checks Assets Phone Calls 1,520 Sales Annual Premium $507 125 $1,850 $16 1,240 1,517 525 816 726 13 710 910 2,050 3,258 4,225 678 36 1,215 1,175 158 61 625 915 2,885 1,258 207 123 65 362 575 1,895 118 178 70 1,665 615 753 469 23 Table 3: Actual Cost Driver Volumes for July 2012 Policies Inforce Product Apps Issued Policies Whole Life Series 1 1,025 1,425 332,500 Whole Life Series 2 720 785 280,250 Variable Life Series 1 1,475 1,752 225,000 Variable Life Series 2 2,125 3,150 75,000 Term Life 2000 650 720 331,250 Term New Horizons 525 650 91,501 Flexible Life 715 755 147,250 Secure Life 2,150 2,252 252,500 Brokerage Annuity 1,150 88,125 Fixed Annuity, Broker 1,125 1,150 72,500 Happy Life Annuity 3,850 4,005 115,050 Bankers Choice Annuity 725 755 62,500 Fixed Annuity, Bank 625 650 25,250 Individual Fixed Annuity 1 525 550 42,500 Individual Fixed Annuity 2 375 415 85,750 Individual Fixed Annuity 3 10 10 8,520 Life Style Annuity 1,105 1,215 40,248 775 5,517 2,410 4,258 1,309 108 1,175 4,175 1,415 12,125 1,823 53 16,250 3,575 250 3,215 715 14,141 521 52 350 6,152 875 11,250 15,525 1,229 176 2,102 15,010 1,276 668 45 120 1,650 270 25 3,150 1,185 1,275 2,282 115 125 6,526 11,251 11,425 475 5,500 10,101 19,252 1,010 21 415 450 891 18 10 10 2,628 91 0.1 615 445 5,250 12,000 550 175 Total 18,875 21,412 2,275,694 3,330 34,884 11,327 7,787 93,639 $100,000 $10,690 $850 Table 7: Cost to Service Life Insurance Policies Function Variable Fixed Total Characteristics of Costs Customer Service Management Manage customer service support of existing policies Salaries & Benefits 254,750 495,250 750,000 Hourly, part time considered variable; others are within a range of 1/-20% of current levels Supplies 21,520 21.520 Fixed within range of +/-20% of current levels Depreciation - Furniture 55,425 56,425 Fixed within range of +/- 20% of current levels eased PCs 47,500 47 500 Fixed within range of +/-20% of current levels Allocated Runt 92,500 82.500 Fixed within range of +/-20% of current levels All Other 199,305 199,305 Fixed within range of +/- 20% of current levels Total $ 276,270 $879,980 $1,156,250 Call Center: Respond to customer inquiries Salaries & Benefits 415,150 42,520 457,670 Hourly, part time considered variable; others are within a range of +/- 20% of current levels Supplies 21,514 21,514 Vary with applications Depreciation - Furniture 62,520 62,520 Fixed within range of +/-20% of current levels Leased PCS 55,125 55.125 Fixed within range of +/-20% of current levels Allocated Rent 90,500 90,500 Fixed within range of +/-20% of current levels All Other 222,928 972 928 Fixed within range of +/-20% of current levels Total $436,664 $250,665 $910,257 Lite Inforce Management Provide service to all existing policies (changes in beneficiary, address, questions) Salaries & Benefits 514.250 120,125 634 375 Hourly part time considured variablu; others are within a range of +/-20% of current levels Supplies 44,450 44.450 Vary with policies Depreciation - Furniture 71,500 71,500 Fixed within range of +/-20% of current levels Teased PCs 61,750 61.750 Fixed within range of +/-20% of current levels Allocated Rent 95,120 95.120 Fixed within range of +/- 20% of current levels All Other 208,280 208.240 Fixed within range of +/-20% of current levels Total $558,700 $348,495 $1,115,475 Claims Management Manage claims process Salaries & Duncfiis 417,500 215,250 632,750 Hourly, part time considered variable; others are within a range of +/- 20% of current levels Supplies 21,250 21,250 Vary with policies Depreciation - Furniture 91,742 81,742 Fixed within range of +/-20% of current levels Leased PCS 91,250 91.250 Fixed within range of +/- 20% of current levels Allocated Rent 111,500 111,500 Fixed within range of +/-20% of current levels All Other 162 518 Fixed within range of +/-20% of current levels Total $438,750 $499,742 $1,101,010 Claims Adjusters: Adjudicate claims Salaries & Benefits 607,150 333,525 940,675 Hourly, part time considered variable: others are within a range of +/-20% of current levels Supplies 41,525 41,525 Vary with policies Depreciation - Furniture 101,525 101,525 Fixed within range of +/-20% of current levels Leased PCs 100,752 100,752 Finod within range of +/-20% of current levels Allocated Hant 117,850 117,850 Fixed within range of +/-20% of current levels All Other 112,673 112,673 Fixed within range of 1/-20% of current levels Total S648,675 $653,625 $1,415,000 Table 7: Cost to Service Life Insurance Policies (continued) Function Variable Fixed Total Characteristics of Costs Life Claims Support: Support claims adjusters, process and issue all claims checks Postage & Mail Costs 91,425 91,425 Vary with claims paid Salaries & Benefits 481,500 112,525 594,025 Hourly, part time considered variable; others are within a range of +/- 20% of current levels Supplies 41,525 41,525 Vary with applications Depreciation - Furniture 91,250 91,250 Fixed within range of +/-20% of current levels Leased PCs 77,141 77,141 Fixed within range of +/- 20% of current levels Allocated Rent 99,750 99,750 Fixed within range of +/- 20% of current levels All Other 23,788 232,788 Fixed within range of +/- 20% of current levels Total $614,450 $613,454 $1,227,904 Life Insurance Systems: System and IT personnel that supports life insurance policies Salaries & Benefits 115,400 411,500 526,900 11,750 Supplies Depreciation - Furniture Leased PCs Allocated Rent 66,271 77,141 61,250 471,938 $1,088,100 11,750 66,271 77,141 61,250 471,938 $1,215,250 Hourly, part time considered variable; others are within a range of +/-20% of current levels Vary with applications Fixed within range of +/- 20% of current levels Fixed within range of +/-20% of current levels Fixed within range of +/- 20% of current levels Fixed, mostly system maintenance charges All Other Total $127,150 Life Claims Systems: System and IT personnel that support life insurance claims Salaries & Benefits 115,400 372,500 487,900 33,250 Supplies Depreciation - Furniture Leased PCs 33,250 88,815 91,250 91,475 437,160 $1,229,850 88,815 91,250 91,475 437,160 $1,081,200 Hourly, part time considered variable; others are within a range of +/-20% of current levels Vary with applications Fixed within range of +/- 20% of current levels Fixed within range of +/-20% of current levels Fixed within range of +/- 20% of current levels Fixed, mostly system maintenance charges Allocated Rent All Other Total $148,650 Table 2. Panel C: Product Allocations by Department, Revised Allocations Sales Service IT Total Product Whole Life Series 1 Marketing $157,635 Finance $300,011 All Other $194,161 $584,062 $3,186,824 2,945,549 Whole Life Series 2 $1,290,124 1,155,822 1,159,683 458,626 141,994 312,748 215,267 Variable Life Series 1 1,307,471 342,067 389,270 391,954 Variable Life Series 2 2,238,117 443,660 Term Life 2000 244,710 357,415 142,181 164,365 186,295 $660,831 661,092 662,657 663,911 660,064 660,891 659,410 802,403 659,270 203,902 244,317 1,476,626 1,653,389 522,565 683,788 2,076,504 804,511 132,048 199,017 4,105,859 5,571,684 3,245,164 2,432,906 2,611,487 Term Life New Horizon Flexible Life 171,900 79,019 Secure Life 700,018 447,075 394,015 1,153,987 318,840 1,706,385 8,255,685 6,523,542 4,239,529 12,511,268 722,040 642,840 350,779 375,431 315,451 1,019,206 453,580 641,752 831,076 3,835,669 1,880,550 1,832,987 6,182,754 1,662,587 936,802 784,688 661,673 5,226 6,402,505 $30,700,125 1,108,043 205,039 1,630,254 133,933 286,676 1,767,557 611,271 403,131 333,724 197,700 Brokerage Annuity Fixed Annuity, Broker Happy Life Annuity Bankers Choice Fixed Annuity, Bank Ind. Fixed Annuity 1 Ind. Fixed Annuity 2 Ind. Fixed Annuity 3 Life Style Annuity Total Allocated 537,723 685,205 837,212 1,181,475 180,019 164,320 87,150 803,455 639,859 646,664 652,790 653,015 641,612 653,761 $11,424,525 542,029 35,638 511,823 $15,750,225 848,223 290,755 884,688 $8,624,567 1,199,720 275,968 1,260,144 $10,500,830 3,539,366 3,407,226 3,969,907 4,068,980 1,336,349 10,573,797 $82,525,122 860,875 $5,524,850 in millions e-Apps Claims Surrenders Annuity Checks Assets Phone Calls 1,520 Sales Annual Premium $507 125 $1,850 $16 1,240 1,517 525 816 726 13 710 910 2,050 3,258 4,225 678 36 1,215 1,175 158 61 625 915 2,885 1,258 207 123 65 362 575 1,895 118 178 70 1,665 615 753 469 23 Table 3: Actual Cost Driver Volumes for July 2012 Policies Inforce Product Apps Issued Policies Whole Life Series 1 1,025 1,425 332,500 Whole Life Series 2 720 785 280,250 Variable Life Series 1 1,475 1,752 225,000 Variable Life Series 2 2,125 3,150 75,000 Term Life 2000 650 720 331,250 Term New Horizons 525 650 91,501 Flexible Life 715 755 147,250 Secure Life 2,150 2,252 252,500 Brokerage Annuity 1,150 88,125 Fixed Annuity, Broker 1,125 1,150 72,500 Happy Life Annuity 3,850 4,005 115,050 Bankers Choice Annuity 725 755 62,500 Fixed Annuity, Bank 625 650 25,250 Individual Fixed Annuity 1 525 550 42,500 Individual Fixed Annuity 2 375 415 85,750 Individual Fixed Annuity 3 10 10 8,520 Life Style Annuity 1,105 1,215 40,248 775 5,517 2,410 4,258 1,309 108 1,175 4,175 1,415 12,125 1,823 53 16,250 3,575 250 3,215 715 14,141 521 52 350 6,152 875 11,250 15,525 1,229 176 2,102 15,010 1,276 668 45 120 1,650 270 25 3,150 1,185 1,275 2,282 115 125 6,526 11,251 11,425 475 5,500 10,101 19,252 1,010 21 415 450 891 18 10 10 2,628 91 0.1 615 445 5,250 12,000 550 175 Total 18,875 21,412 2,275,694 3,330 34,884 11,327 7,787 93,639 $100,000 $10,690 $850