Answered: Describe the Investments in Life…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Describe the Investments in Life Insurance Policies.

Expert Solution

Step 1

Life Insurance policies are to provide financial support to the beneficiaries and dependents after the insured person dies. For example:

Parents of minor
Parents of the adults who require special care
Pensioner who are married
Parents of old age who wants to keep money for their children.
Parents who are under student debt or loan.

Components of policy are as follows:

Death benefit: It is basically the face value of the sum of money which is guaranteed by an insurance company to the insured person’s beneficiary. For example, children can be the beneficiary of their parents.

Premium: The money paid by the policyholder to the insurer is called as premium. The premium paid is decided by two factors a) what is the life expectancy of the insured, b) what death benefit insurer will pay to the insured.

Cash value: It is a benefit or living benefit that stays with the policyholder during his life. Some of the policies have schemes and restrictions on how the money can be withdrawn. This value can be used by the policyholder during his life time.

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