Question

A participating ordinary life policy in the amount $10,000 is sold to an individual, age 35. The cost data given: Annual premium $230 Total dividends for 20 years $1613 Cash value at the end of 20 years $3620 Accumulated value of the annual premium at 5 percent for 20 years is $7985 Accumulated value of the dividends at 5 percent for 20 years is $2352 Amount to which $1 deposited annually at the beginning of each year will accumulate in 20 years at 5 percent is $34719 a. Based on this information, compute the annual net cost per $1000 of life insurance at the end of 20 years using the traditional net cost method. b. Compute the annual surrender cost index per $1000 of life insurance at the end of 20 years. c. Compute the annual net payment cost index per $1000 of life insurance at the end of 20 years.

Answer 1

To calculate the annual net cost, surrender cost index, and net payment cost index per $1000 of life insurance at the end of 20 years, we use the given cost data.

Step-by-step explanation:

To compute the annual net cost per $1000 of life insurance at the end of 20 years, we need to calculate the total amount paid in premiums over the 20 years and subtract the accumulated values of the premiums and dividends at 5 percent interest. The net cost is then divided by the total amount of insurance ($10,000).

Next, to compute the annual surrender cost index per $1000 of life insurance at the end of 20 years, we divide the sum of the accumulated value of premiums and accumulated dividends by the accumulated value of the premiums.

Finally, to compute the annual net payment cost index per $1000 of life insurance at the end of 20 years, we subtract the accumulated value of dividends from the accumulated value of premiums and divide by the accumulated value of the premiums.