Suppose you are 46 and have a $120,000 face amount, 14-year, limited-payment, pa

Question

Suppose you are 46 and have a $120,000 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 $420. The cash value of the policy is expected to be $4,800 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. (Do not round intermediate calculations. Round time value factor to 3 decimal places and final answer to the nearest whole dollar.)

Explanation / Answer

Net Cost of insurance = Annual Premium - Monthly payment if investment made in 8%

Net Cost of insurance = 420 - 4800/FVIFA(8%,14)

Net Cost of insurance = 420 - 4800/24.215

Net Cost of insurance = $ 222

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