(2) Richard, age 35, is married and has two children, ages 2 and 5. He is consid

Question

(2) Richard, age 35, is married and has two children, ages 2 and 5. He is considering the purchase of additional life insurance. He has the following financial goals and objectives: - Pay off the mortgage on his home, which has 25 years remaining - Accumulation of a sizeable retirement fund - Payment of monthly income to the family if he should die - Withdrawal of funds from the policy when the children reach college age For each of the following life insurance policies, indicate with an explanation which of the above financial goals, if any, could be met if the policy is purchased. Treat each policy separately. a. Decreasing term insurance b. Ordinary life insurance c. Universal life insurance d. Variable universal life insurance

Explanation / Answer

Here we discuss all the four policies and compare it with Richard’s requirement.

This policy is suitable to those persons who are young parents and have many responsibilities to take care, and having more uncertainty of future.

This policy is benefitted to those who have one more life insurance policy. Which can helpful in old age.

Richard is a young parent having more responsibilities of family and upbringing of their kids. He has one more life cover. This policy provides a handsome amount on any future uncertainty. But not benefited at the time of retirement. Family can be benefited only at initial ages. Higher education of kids needs another investment.

2. Ordinary life insurance policy is the policy in which policy holder pays premium throughout his life. And fixed benefits received by beneficiaries at the time of death of the policy holder. In this policy premium amount is same in advance age also. And the policy benefits are also same at every time. In this policy, holder can purchase a loan against accumulated cash value.

Cover provide same benefits all the time so at any time family can be benefited with same value at any time, Richard can purchase loan from this policy for their kid’s higher education, but not able to get retirement benefits.

3. Universal life insurance policy is almost same as ordinary life insurance policy. But the only difference is that universal life insurance has flexible premium policy. Which adjust whole premium on monthly basis, and helpful if you miss any of the premiums? Universal life insurance policy also adjusts death benefits and cash withdrawals. So the policy holder can adjust according to their requirements. Interest calculation is also done on monthly basis it pays more than ordinary life insurance.

4. Variable universal life insurance policy provide both life insurance benfit and investment. Policy holder can change the poicy according to the requirement ofpolicy holder.This can be benefited to Richard all the way. Because this policy include benefits of ordinary insurance plan, universal life insurance plan and investment benefits. So it will be helpful for retirement benfits, death cover and kids eduction.

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