Question

Annual insurance is 1,000 face value.

company A is 1.86
company B is 1.86
company C is 2.07
company D is 2.25

Because Aaron, age 32, is a smoker, he must pay more for life insurance. Given that Company A charges 20% more for smokers, Company B charges 18% more for smokers, Company C charge 25% more for smokers and Company D charges 15% more for smokers, Aaron decides to buy his $250,000 policy from Company B. Which of the following statements is true?



a.
Aaron is paying the smallest premium possible with Company B.
b.
Aaron is paying $93 more in premiums than he would with Company A.
c.
Aaron is paying $129 more in premiums than he would with Company C.
d.
Aaron could have chosen any company because the premiums are all the same.

ANSWER WAS A

Answer 1

The correct answer is A.

Explanation:

• Premium for Company A :

face value = 1.86 , charges are 20% more for smokers

⇒ Charges = 20% of 250000 = $50000

Total charge = Charge × face value

= 50000 × 1.86 = $93000

• Premium for Company B :

face value = 1.86 , charges are 18% more for smokers

⇒ Charges = 18% of 250000 = $45000

Total charge = Charge × face value

= 45000 × 1.86 = $83700

• Premium for Company C :

face value = 2.07 , charges are 25% more for smokers

⇒ Charges = 25% of 250000 = $62500

Total charge = Charge × face value

= 62500 × 2.07 = $129375

• Premium for Company D :

face value = 2.25 , charges are 15% more for smokers

⇒ Charges = 15% of 250000 = $37500

Total charge = Charge × face value

= 37500 × 2.25 = $84375

Hence, The option A. is correct that is Aaron is paying the smallest premium possible with company B