Using the premium schedules provided in Exhibit 8.2 , 8.3 , and 8.5 , how much i
ID: 2779691 • Letter: U
Question
Using the premium schedules provided in Exhibit 8.2, 8.3, and 8.5, how much in annual premium would a 25-year-old male have to pay for $100,000 of annual renewable term, level premium term, and whole life insurance? (Assume a 10-year term or period of coverage.) How much would a 25-year-old woman have to pay for the same coverage? Round your answers to the nearest dollar.
Consider a 40-year-old male (or female): Using annual premiums, compute the total cost of 10 years of coverage under annual renewable and level premium term options and whole life insurance coverage. Relate the advantages and disadvantages of each policy type to their price differences. Round your answers to the nearest dollar.
XHIBIT 8.2 Representative Annual Renewable Term Life Insurance Premiums:$100,000 Policy, Preferred Nonsmoker Rates When you buy term life insurance, you're buying a product that provides life insurance
coverage and nothing more. This table shows representative rates for several age
categories and selected policy years; actual premiums increase every year. As you can see,
females pay less than males for coverage, and premiums increase sharply with age. AGE 25 AGE 40 Policy Year Male Female Male Female 1 $95 $49 $145 $117 5 $97 $63 $177 $151 10 $107 $88 $237 $194 15 $145 $117 $299 $236 20 $177 $151 $429 $366
Explanation / Answer
Premiums for an insurance of $100,000
25 years age:
Annual premiums for a 10 Year Annual renewable term is $107 for male and $88 for female as per exhibit 8.2
Annual premiums for a 10 year Level premium term is $106 for male and $102 for female as per exhibit 8.3
Annual premiums for a Whole life insurance for male is $603 each year, so premium paid for 10 years will be $6,030 ($603 x 10) as per exhibit 8.5
Annual premiums for a Whole life insurance for female is $525 each year, so premium paid for 10 years will be $5,250 ($525 x 10) as per exhibit 8.5
40 years age:
Annual premiums for a 10 Year Annual renewable term is $237 for male as per exhibit 8.2
Annual premiums for a 10 year Level premium term is $122 for male as per exhibit 8.3
Annual premiums for a Whole life insurance for male is $1,078 each year, so premium paid for 10 years will be $10,708 ($1,078 x 10) as per exhibit 8.5
Difference between these policies:
An annual renewable term policy provides you a benefit of locking the term for an insurance policy and renews every year without applying for any additional documentation or formalities. The annual premium for this insurance starts with a lower amount, which increases every year. The premium for this insurance is a bit higher than other two due to its add-on feature of renewability.
Level term life insurance is similar to annual renewable term. The only difference is that premium remains same throughout the term of insurance.
A whole life insurance policy offers you an insured life till the death of the insured. The insurance premium is the highest for this insurance policy due to the assured sum to be given back to the beneficiary.
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