Suppose you are 46 and have a $420,000 face amount, 14-year, limited-payment, pa
ID: 2768732 • Letter: S
Question
Suppose you are 46 and have a $420,000 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 $1,470. The cash value of the policy is expected to be $16,800 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. UseExhibit 1-B. (Do not round intermediate calculations. Round time value factor to 3 decimal places and final answer to the nearest whole dollar.)
Suppose you are 46 and have a $420,000 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 $1,470. The cash value of the policy is expected to be $16,800 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. UseExhibit 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 x PVIFA(14,8%) – Terminal benefit x PVIF(14,8%)
= 1470 x 8.244237 -16800 x 0.340461
= 12,119.03 – 5719.74
= 6399.29