Mark has the below information on two life insurance policies he owns: one is a Whole life
Question:
Mark has the below information on two life insurance policies he owns: one is a Whole life policy and the other is a Term life policy.
Year | Guaranteed Contract Premium ($) | Guaranteed Death Benefit ($) | Projected Dividend ($) | Projected Cash Value ($) | Term Premium ($) |
1 | 2,300 | 200,000 | 0 | 0 | 325 |
2 | 2,300 | 200,000 | 0 | 0 | 330 |
3 | 2,300 | 200,000 | 0 | 0 | 335 |
4 | 2,300 | 200,000 | 0 | 3,500 | 340 |
5 | 2,300 | 200,000 | 250 | 6,000 | 355 |
6 | 2,300 | 200,000 | 400 | 9,000 | 370 |
7 | 2,300 | 200,000 | 600 | 12,000 | 390 |
8 | 2,300 | 200,000 | 750 | 15,000 | 400 |
9 | 2,300 | 200,000 | 900 | 18,000 | 410 |
10 | 2,300 | 200,000 | 1,000 | 24,000 | 430 |
Required:
Find the return on the Whole life insurance policy when the cost of the Term life is included.
Assume in year 10, for the Cash Flow calculation, that the Whole life policy is cashed out.
Additionally, which policy should Mark select if he could invest the difference between the Term and Whole life policies’ premiums at 9 percent? Explain your reasoning.
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill