Question

Suppose you invest $10,000 at the age of 40 and agree to start receiving payments at the age of 50. at age 48, you decide you want to withdraw $1000 from your account. the insurance company charges you 50% of the withdrawal. what is the surrender charge? a. $500.00 b. $100.00 c. $5000.00 d. $1500.00

Answer 1

The surrender charge for withdrawing $1000 from the investment account at age 48 would be $500.00 (Option A).

Step-by-step explanation:

The surrender charge is calculated by applying the 50% charge to the withdrawal amount. In this case, if you decide to withdraw $1000 at age 48, the insurance company imposes a 50% charge on this amount. The calculation is as follows:

`\[ \text{Surrender Charge} = \text{Withdrawal Amount} * \text{Charge Percentage} \]`

`\[ \text{Surrender Charge} = $1000 * 0.50 = $500 \]`

At age 48, when you make the withdrawal, the surrender charge would be $500, as 50% of the $1000 withdrawal is deducted by the insurance company. Therefore, the correct answer is option A, $500.00.

Understanding surrender charges is crucial when planning financial decisions, as it reflects the cost associated with early withdrawals from an investment account. In this scenario, the 50% surrender charge serves as a deterrent to withdrawing funds before the agreed-upon payout age, emphasizing the long-term commitment and financial planning involved in such investment agreements. It's important for investors to be aware of these charges and factor them into their decision-making process to ensure effective financial management.