Suppose you are 46 and have a $180,000 face amount, 14-year, limited-payment, pa

Question

Suppose you are 46 and have a $180,000 face amount, 14-year, limited-payment, participating policy (dividends will be used to build up the cash value of the policy). Your annual premium is $630. The cash value of the policy is expected to be $7,200 in 14 years. Using time value of money and assuming you could invest your money elsewhere for a 8 percent annual yield, calculate the net cost of insurance. Use Exhibit 1-B. Exhibit 1 -B Future value (compounded sum) of $1 paid in at the end of each period of a given number of time periods (an annuity)

Explanation / Answer

Net cost of the Insurance = 630 * fvifa(8%,14) + future cash value of dividend =

= 630 * 24.215 + 7200 = 15255.45 + 7200 = $22455.45

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