Suppose you are 46 and have a $480,000 face amount, 14-year, limited-payment, pa
ID: 2750623 • Letter: S
Question
Suppose you are 46 and have a $480,000 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 $1,680. The cash value of the policy is expected to be $19,200 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. (Do not round intermediate calculations. Round time value factor to 3 decimal places and final answer to the nearest whole dollar.)
Explanation / Answer
Thus,
Net cost of Insurance is $ 7,313.
Annual Premium A 1680 Cumulative discount factor on 8% annual Yield for 14 years B 8.244 Present value of premiums C=A*B 13850 Discount factor at the end of 14 th year D 0.34 Cash value of policy at the ned of 14 th Year E 19200 Present value of Cash value F=E*D 6537 Net Cost C-F 7313