Principles of Risk Management and Insurance, 13th Edition

Application Questions

1. Nicole, age 25, is considering the purchase of a $20,000 participating ordinary life insurance policy. The annual premium is $248.60. Projected dividends over the first 20 years are $814. The cash value at the end of 20 years is $4,314. If the premiums are invested at 5 percent interest, they will accumulate to $8,631 at the end of 20 years. If the dividends are invested at 5 percent interest, they will accumulate to $1,163 at the end of 20 years. A $1 deposit at the beginning of each year at 5 percent interest will accumulate to $34.719 at the end of 20 years.

   1. Based on the traditional net cost method, calculate the cost per $1,000 per year.

   2. Based on the surrender cost index, calculate the cost per $1,000 per year.

   3. Based ...