Chunhua Zhu, a 38-year-old widowed mother of three children (ages 12, 10, and 4), works as a product analyst for Nestlé Purina PetCare Company. Although she’s covered by a group life insurance policy at work, she feels, based on some rough calculations, that she needs additional protection. Richard Strong, an insurance agent from Apex Insurance, has been trying to persuade Chunhua to buy a $150,000, 25-year, limited payment whole life policy. However, Chunhua favors a variable life policy. To further complicate matters, Chunhua’s father feels that term life insurance is more suitable to the needs of her young family. To resolve the issue, Chunhua has decided to consult William Masters, a childhood friend who is now a professor of insurance at a nearby university. 

Critical Thinking Questions

1. Explain to Chunhua the differences between

(a) a whole life policy,

(b) a variable life policy, and

(c) a term life policy.

2. What are the major advantages and disadvantages of each type of policy?

3. In what way is a whole life policy superior to either a variable life or term life policy? In what way is a variable life policy superior? How about term life insurance?

4. Given the limited information in the case, which type of policy would you recommend for Ms. Zhu? Defend and explain your recommendations.