Question

David purchased a $100,000 participating whole life policy. The annual premium is $2,280. Projected dividends for the first 20 years are $15,624. The cash value after 20 years will be $35,260. If the premiums were invested at 5 percent for 20 years, the premiums would grow to $79,156. If the dividends were accumulated at 5 percent for 20 years, they would grow to be $24,400. The amount to which $1 deposited annually will accumulate in 20 years at 5 percent is $34.719. Based on this information, what is the net payment cost per thousand per year of David's policy over the 20-year period

Answer 1

$15.77

Step-by-step explanation:

Net payment cost index is a term that defines a method of calculating the actual price of an insurance policy to an insured in a situation where death comes up at the expiration of a given duration. Thus, the time value of money is fully considered, and it is calculated as this:

The accumulated premiums - accumulated dividends =

= > $79,156 - $24,400 = $54,756

Hence, $54,756 ÷ 34.719 (accumulated interest rate) = $1,577.11

$1,577.21 ÷ 100 = $15.77

Therefore, the net payment cost is = $15.77