Quiz 8: Insuring Your Life

Business

Based on the assumptions the following table E1 , shows the resources that are available and which are as follows: img • In the table E1 ,in period 1, the total monthly commitment is calculated by adding monthly child support and monthly alimony • In the table E1, in the period 1, the annual commitment is calculated by multiplying the total monthly commitment with 12 • In the table E1, in the period 1, the financial resources per period are calculated by multiplying the annual commitment with number of years. • In the table E1, the same procedure of calculations are carried out in the periods 2 and 3 • In the table E1, in the period 1, the total financial resources needed is calculated by adding all the 3 periods total financial resources needed. • In the table E1, in the period 1, the total financial resources available is calculated by adding Savings and Life Insurance provided by Employer. • In the table E1, in the period 1, the additional life insurance needed is calculated by subtracting the total financial resources needed from total financial resources available. From the above cautions it can be concluded that, the insurance required by Mr. A is to meet his child support and alimony amount. Mr. A should take a decreasing term life insurance as the amount required to be paid to his wife and children would decrease over the years, hence additional insurance can be decreasing term.

The following table R1 shows the calculation of the financial resources available with Mrs. S and the resources required for the medical expenses of her mother, which are as follows: img • In the table R1, the total medical expenses are calculated by adding all the financial resources needed i.e. Monthly Medical Expenses, Annual Medical Expenses, Medical Expenses per Period, and Payment to Trusted Friend • In the table R1, the Total Financial Resources required is calculated by adding all the special needs i.e. mortgage, auto loan, credit card outstanding, funeral expenses • In the table R1, the Total Financial Resources Available is calculated by adding all the Financial Resources Available i.e. pension income for the periods , condo, current balance in 401(k) plan. • In the table R1, the Insurance needed is calculated by subtracting the total financial resources required form total financial resources available Therefore, the total insurance requirement based on the above calculation is img Therefore, from the above calculations it can be concluded that, Mrs. S should take an increasing term insurance as medical expenses are expected to increase with the age of her mother.

The annual premium for 25-year-old male for $100,000 of annual renewable term of five year term is $97 for the whole five years term as per the Exhibit 8.2. The annual premium for 25-year-old male for $100,000 of whole life insurance of five year term is $603 to be paid for each year, so for five years it will be $3,015 img as per the Exhibit 8.5. The annual premium for 25-year-old female for $100,000 of annual renewable term of five year term is $63 for the whole five years term as per the Exhibit 8.2. The annual premium for 25-year-old female for $100,000 of whole life insurance of five year term is $525 to be paid for each year, so for five years it will be $2,625 img as per the Exhibit 8.5. The following table shows the annual premium and the total premium of 10 years coverage of a 40 year male and female for annual renewable, level premium and whole life insurance coverage as follows: img img Based upon the above tables it can be concluded that, the annual renewable term life insurance provides only life cover and no other benefits. The premium amount changes based upon the years of coverage. As the years increase the premium amount also increases. Annual renewable term life insurance however has the disadvantage of having higher premium compared to premium term life insurance. The premium term life insurance has the advantage of having a lower premium over the annual renewable term life insurance as it has renewal factor. The policy is however not flexible as the insurance cover has to be fixed over the period of coverage. This policy provides only temporary coverage and renewal is a problem as there are some factors that makes difficult to qualify for insurance. The whole life insurance policy has the highest insurance premium as it provides the insurance coverage to the entire life of the insured and also allows savings feature. The insurance company pays individuals the amount earned by them based on the premium invested. The policy is disadvantageous for people looking for insurance coverage at lower cost.