In the comparative interest rate method, what is the "side fund" used for?

The "side fund" in the comparative interest rate method serves to equal the surrender value of a higher premium policy. This method is often used when evaluating different insurance products, particularly in scenarios where a policyholder is considering replacing an existing policy with a new one that has a lower premium but potentially lower benefits.

When a policy is surrendered, the cash value available to the policyholder is known as the surrender value. The side fund is essentially an additional account or reserve that is accumulated alongside the lower premium policy. This fund accumulates value over time, with the intent of making up the difference between the lower cash value of the new policy and the higher surrender value of the existing policy.

This approach allows policyholders to assess the long-term benefits and costs associated with their options, ensuring they do not experience a significant financial disadvantage when switching policies. By equalizing the surrender values through the side fund, policyholders can make informed decisions by comparing the total value they can access from both insurance policies.