Sharon is a 60-year-old female who has recently become the legal guardian and sole caretaker of her three-year-old grandson. Ideally, she would like to purchase permanent insurance coverage, but her primary concern is making sure her grandson will be taken care of financially if she dies before he begins college. Given her current financial situation, she is interested in a term life insurance policy that will last 15 years. Sharon goes to an insurance broker to purchase a policy and is shown the following two rate tables to help her choose between annual renewable and level premium term life insurance. Yearly Rates on Term Life Insurance Policies Annual Renewable Term Life Rates Policy Year Age 25 Age 40 Age 60 1 $119 $139 $252 5 $147 $219 $562 15 $176 $507 $1,313 20 $259 $1,054 $2,989 Total Cost 5 Years: $625 $897 $2,100 Total Cost 15 Years: $2,135 $6,205 $11,987 Total Cost 20 Years: $3,777 $8,287 $22,346 Level Premium Term Life Rates Age 5 Year 15 Year 20 Year 25 $102 $84 $95 35 $101 $84 $95 40 $119 $102 $113 50 $136 $167 $195 60 $245 $295 $394 Given her age and desired policy term, she can purchase an annual renewable term life policy and pay in the first year and a total of over the course of the policy. Alternatively, she can purchase a level premium term life policy and pay a premium of per year for a total of over the course of the policy. This example is representative of why, in general, people today purchase term life insurance.
Sharon is a 60-year-old female who has recently become the legal guardian and sole caretaker of her three-year-old grandson. Ideally, she would like to purchase permanent insurance coverage, but her primary concern is making sure her grandson will be taken care of financially if she dies before he begins college. Given her current financial situation, she is interested in a term life insurance policy that will last 15 years. Sharon goes to an insurance broker to purchase a policy and is shown the following two rate tables to help her choose between annual renewable and level premium term life insurance. Yearly Rates on Term Life Insurance Policies Annual Renewable Term Life Rates Policy Year Age 25 Age 40 Age 60 1 $119 $139 $252 5 $147 $219 $562 15 $176 $507 $1,313 20 $259 $1,054 $2,989 Total Cost 5 Years: $625 $897 $2,100 Total Cost 15 Years: $2,135 $6,205 $11,987 Total Cost 20 Years: $3,777 $8,287 $22,346 Level Premium Term Life Rates Age 5 Year 15 Year 20 Year 25 $102 $84 $95 35 $101 $84 $95 40 $119 $102 $113 50 $136 $167 $195 60 $245 $295 $394 Given her age and desired policy term, she can purchase an annual renewable term life policy and pay in the first year and a total of over the course of the policy. Alternatively, she can purchase a level premium term life policy and pay a premium of per year for a total of over the course of the policy. This example is representative of why, in general, people today purchase term life insurance.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Sharon is a 60-year-old female who has recently become the legal guardian and sole caretaker of her three-year-old grandson. Ideally, she would like to purchase permanent insurance coverage, but her primary concern is making sure her grandson will be taken care of financially if she dies before he begins college. Given her current financial situation, she is interested in a term life insurance policy that will last 15 years.
Sharon goes to an insurance broker to purchase a policy and is shown the following two rate tables to help her choose between annual renewable and level premium term life insurance.
Yearly Rates on Term Life Insurance Policies
|
Annual Renewable Term Life Rates
|
|
|
---|---|---|---|
Policy Year | Age 25 | Age 40 | Age 60 |
1 | $119 | $139 | $252 |
5 | $147 | $219 | $562 |
15 | $176 | $507 | $1,313 |
20 | $259 | $1,054 | $2,989 |
Total Cost 5 Years: | $625 | $897 | $2,100 |
Total Cost 15 Years: | $2,135 | $6,205 | $11,987 |
Total Cost 20 Years: | $3,777 | $8,287 | $22,346 |
|
Level Premium Term Life Rates
|
|
|
---|---|---|---|
Age | 5 Year | 15 Year | 20 Year |
25 | $102 | $84 | $95 |
35 | $101 | $84 | $95 |
40 | $119 | $102 | $113 |
50 | $136 | $167 | $195 |
60 | $245 | $295 | $394 |
Given her age and desired policy term, she can purchase an annual renewable term life policy and pay
in the first year and a total of
over the course of the policy. Alternatively, she can purchase a level premium term life policy and pay a premium of
per year for a total of
over the course of the policy.
This example is representative of why, in general, people today purchase term life insurance.
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