a. Explain the meaning of premature death and outline the economic justifications for the purchase of...

 

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a. Explain the meaning of premature death and outline the economic justifications for the purchase of life insurance. (4 marks) b. James, age 40, is married with a 3-year-old son attending a nursery school. He estimates that his average annual earnings over the next 25 years will be S650,000. He further works out that one-third of his average annual earnings will be used to pay taxes, insurance premiums and the costs of self-maintenance. The remainder of his income will be used to support his family. i. Using the 'human life value' approach, calculate the life insurance should James purchase to fulfill his financial needs. It is assumed that a 7 percent interest rate is appropriate. Show all your calculations. (4 marks) ii. What are the major disadvantages, for a policyholder, of using the human life value approach in determining the amount of new life insurance needed? (3 marks) c. What is the primary purpose of a 'legal reserve' in life insurance? Explain the differences between 'legal reserve' and 'cash value'. (10 marks) a. Explain the meaning of premature death and outline the economic justifications for the purchase of life insurance. (4 marks) b. James, age 40, is married with a 3-year-old son attending a nursery school. He estimates that his average annual earnings over the next 25 years will be S650,000. He further works out that one-third of his average annual earnings will be used to pay taxes, insurance premiums and the costs of self-maintenance. The remainder of his income will be used to support his family. i. Using the 'human life value' approach, calculate the life insurance should James purchase to fulfill his financial needs. It is assumed that a 7 percent interest rate is appropriate. Show all your calculations. (4 marks) ii. What are the major disadvantages, for a policyholder, of using the human life value approach in determining the amount of new life insurance needed? (3 marks) c. What is the primary purpose of a 'legal reserve' in life insurance? Explain the differences between 'legal reserve' and 'cash value'. (10 marks)

Answer rating: 100% (QA)

Solution a Premature death means when death of a person occurs earlier the estimated average age of a person This can be happened due to accident seri... View the full answer