Figure 1: Cash schedule for a whole life plan: guaranteed and projected 3. Basic Plan -...

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Figure 1: Cash schedule for a whole life plan: guaranteed and projected 3. Basic Plan - Illustration Summary SURRENDER VALUE DEATH BENEFIT Guaranteed Non-Guaranteed Non-Guaranteed End of Policy Year Total Premiums Paid Guaranteed Reversionary Cash Value Bonus Terminal Bonus Total Guaranteed* Reversionary Terminal Bonus Bonus Total Total Benefit Amount (A) (B) (C) (A)+(B)+(C) (D) (E) (F) (A)+(E)+(F)= (G) Max (D or G) -234505223 1 30,000 0 ° 0 0 31,500 ° 0 0 31,500 60,000 90,000 0 0 ° ° 63,000 0 ° 0 63,000 32,559 2,375 7,319 42,253 94,500 2,911 8,971 44,441 94,500 120,000 54,438 4,855 12,700 71,993 126,000 5,850 15,302 75,590 126,000 150,000 81,267 7,439 16,225 104,930 157,500 8,817 19,230 109,314 157,500 10 150,000 111,788 21,909 41,501 175,197 157,500 24,078 45,611 181,477 181,477 15 150,000 133,913 Age 65 150,000 151,686 150,000 168,540 150,000 183,249 150,000 207,151 Age 70 150,000 226,456 Age 75 150,000 Age 80 Age 85 150,000 150,000 240,246 253,729 267,825 Age 90 Age 95 150,000 150,000 283,147 299,082 Age 100 150,000 315,629 37,131 79,616 53,499 150,756 75,484 250,711 102,880 406,451 122,884 583,016 149,269 915,510 177,275 1,394,055 207,003 2,043,999 238,557 2,930,428 272,051 4,173,784 307,603 5,928,549 345,341 8,398,141 250,659 157,500 40,079 85,936 259,927 259,927 355,940 157,500 494,735 692,580 56,854 160,211 368,751 368,751 168,540 913,050 1,291,235 1,811,576 2,504,730 3,436,810 4,728,981 6,535,234 9,059,110 183,249 207,151 226,456 240,246 253,729 267,825 283,147 299,082 315,629 79,181 102,880 406,451 122,884 583,016 149,269 915,510 177,275 1,394,055 207,003 2,043,999 238,557 2,930,428 272,051 4,173,784 307,603 5,928,549 345,341 8,398,141 262,991 510,712 510,712 692,580 913,050 1,291,235 1,291,235 1,811,576 1,811,576 2,504,730 2,504,730 3,436,810 3,436,810 4,728,981 4,728,981 6,535,234 6,535,234 9,059,110 9,059,110 692,580 913,050 Explanation on above illustration: Please refer to the Explanation Notes Section. *The guaranteed death benefit is equal to 105% of the total premiums paid for the basic plan. However, if the Guaranteed Cash Value (A) is higher than such amount in the respective year, then the guaranteed death benefit will be equal to the Guaranteed Cash Value (A). (a) What is the total premium payment (ignore the discount rate)? Is the surrender value after 5 years larger or smaller than the total premium payment after 5 years? (5') (b) Can you explain what the two columns of "reversionary bonus” and “terminal bonus” represent? (5) (c) When is the cash surrender value equal to the death benefit? Why is cash surrender value smaller than the death benefit in the early life of the policy? (5') (d) What is the internal rate of return provided by this policy when the policyholder with- draws the cash value after 80 (assume he survives until 80)? Assume the non-guaranteed reversionary and terminal bonuses are realized. (5') (e) Is this product mainly for saving purpose or for insurance purpose? Why? (5') (f) Calculate the cash value and death protection 5 years and 20 years after the policy is in effect. When you answer this question, you can ignore the nonguaranteed bonus and only consider the guaranteed cash value. (5') Figure 1: Cash schedule for a whole life plan: guaranteed and projected 3. Basic Plan - Illustration Summary SURRENDER VALUE DEATH BENEFIT Guaranteed Non-Guaranteed Non-Guaranteed End of Policy Year Total Premiums Paid Guaranteed Reversionary Cash Value Bonus Terminal Bonus Total Guaranteed* Reversionary Terminal Bonus Bonus Total Total Benefit Amount (A) (B) (C) (A)+(B)+(C) (D) (E) (F) (A)+(E)+(F)= (G) Max (D or G) -234505223 1 30,000 0 ° 0 0 31,500 ° 0 0 31,500 60,000 90,000 0 0 ° ° 63,000 0 ° 0 63,000 32,559 2,375 7,319 42,253 94,500 2,911 8,971 44,441 94,500 120,000 54,438 4,855 12,700 71,993 126,000 5,850 15,302 75,590 126,000 150,000 81,267 7,439 16,225 104,930 157,500 8,817 19,230 109,314 157,500 10 150,000 111,788 21,909 41,501 175,197 157,500 24,078 45,611 181,477 181,477 15 150,000 133,913 Age 65 150,000 151,686 150,000 168,540 150,000 183,249 150,000 207,151 Age 70 150,000 226,456 Age 75 150,000 Age 80 Age 85 150,000 150,000 240,246 253,729 267,825 Age 90 Age 95 150,000 150,000 283,147 299,082 Age 100 150,000 315,629 37,131 79,616 53,499 150,756 75,484 250,711 102,880 406,451 122,884 583,016 149,269 915,510 177,275 1,394,055 207,003 2,043,999 238,557 2,930,428 272,051 4,173,784 307,603 5,928,549 345,341 8,398,141 250,659 157,500 40,079 85,936 259,927 259,927 355,940 157,500 494,735 692,580 56,854 160,211 368,751 368,751 168,540 913,050 1,291,235 1,811,576 2,504,730 3,436,810 4,728,981 6,535,234 9,059,110 183,249 207,151 226,456 240,246 253,729 267,825 283,147 299,082 315,629 79,181 102,880 406,451 122,884 583,016 149,269 915,510 177,275 1,394,055 207,003 2,043,999 238,557 2,930,428 272,051 4,173,784 307,603 5,928,549 345,341 8,398,141 262,991 510,712 510,712 692,580 913,050 1,291,235 1,291,235 1,811,576 1,811,576 2,504,730 2,504,730 3,436,810 3,436,810 4,728,981 4,728,981 6,535,234 6,535,234 9,059,110 9,059,110 692,580 913,050 Explanation on above illustration: Please refer to the Explanation Notes Section. *The guaranteed death benefit is equal to 105% of the total premiums paid for the basic plan. However, if the Guaranteed Cash Value (A) is higher than such amount in the respective year, then the guaranteed death benefit will be equal to the Guaranteed Cash Value (A). (a) What is the total premium payment (ignore the discount rate)? Is the surrender value after 5 years larger or smaller than the total premium payment after 5 years? (5') (b) Can you explain what the two columns of "reversionary bonus” and “terminal bonus” represent? (5) (c) When is the cash surrender value equal to the death benefit? Why is cash surrender value smaller than the death benefit in the early life of the policy? (5') (d) What is the internal rate of return provided by this policy when the policyholder with- draws the cash value after 80 (assume he survives until 80)? Assume the non-guaranteed reversionary and terminal bonuses are realized. (5') (e) Is this product mainly for saving purpose or for insurance purpose? Why? (5') (f) Calculate the cash value and death protection 5 years and 20 years after the policy is in effect. When you answer this question, you can ignore the nonguaranteed bonus and only consider the guaranteed cash value. (5')

Answer rating: 100% (QA)

a The total premium payment is the sum of all premiums paid over the years From the given table the total premium payment after 5 years is 150000 The ... View the full answer