Ms . Echols is the owner and beneficiary of a $ 1 5 0 , 0 0
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Question:
Ms Echols is the owner and beneficiary of a $ insurance policy on her mothers life. Ms Echols has paid $ premiums, and the policy is fully paid up no more premiums are due She needs money and is considering cashing in the policy for its $ cash surrender value. Alternatively, she can borrow $ against the policy from the insurance company. She will pay percent annual interest a nondeductible personal expense and repay the loan from the death benefit. Ms Echolss mother is in poor health and should live no more than years. Ms Echolss marginal tax rate on ordinary income is percent. Use Appendix A and Appendix B
Required:
Compute the tax cost and the aftertax cash flow if Ms Echols surrenders the policy for her immediate cash requirement.
Assuming a percent discount rate, compute the NPV of the aftertax cash flow if she instead opts to borrow against the policy. Assume her mother dies on the last day of year
Assuming a percent discount rate, should she cash in the policy or borrow against it
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