Done 2 of 2 0124 12 ect ofIn lation on a Life Insurance Policy. Allen has purcha

Question

Done 2 of 2 0124 12 ect ofIn lation on a Life Insurance Policy. Allen has purchased a whole life policy with a death benefit of Calculating the E 150,000. Assuming that he dies in 8 years and the average inflation has been 2 percent, what is the value of the purchasing power of the proceeds? 012 3, Determining the Cost of Insurance. Suppose you are 45 and have a S 10,000 face amount 15-year limited-payment, part cipa ing policy (dividends will be used to build up the cash value of the policy). Your annual premium is $350. The cash value of the policy is expected to be $4,000 in 15 years. Using time value of money and assuming you could invest your money elsewhere for a 7 percent annual yield, calculate the net cost of insurance

Explanation / Answer

12.

Value of purchasing power = $150,000 / (1 + 2%) ^ 8

= $150,000 / 1.1716

= $128,023.56.

Value of purchasing power is $128,023.56.

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