Ch. 5 - Insurance (1).pptx - Insurance Example You would like to buy a life insurance policy that would allow you to provide $50,000 per year for your

Ch. 5 - Insurance (1).pptx - Insurance Example You would...

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Insurance Example You would like to buy a life insurance policy that would allow you to provide $50,000 per year for your family, in the event of your unfortunate death. How much insurance should you buy? Assume your spouse would safely invest the insurance proceeds at an annual rate of 5%.
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50,000/.05 = $1,000,000 If the payoff is invested earning 5%, $1,000,000 would provide a perpetuity of $50,000 per year. Insurance Example
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Term Insurance Suppose $150 per year in premiums will provide $100,000 in term insurance coverage. You will need 10 times this amount. So $1,500 per year will provide $1,000,000 in term insurance.
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Whole Life Insurance Suppose your agent advises you to consider a whole life policy instead of term insurance. The policy is more expensive, but it builds a cash value. For $8,000 per year, it provides $1 million in term insurance, plus $750,000 in cash at the end of 40 years. What should you do?
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Whole Life Insurance Thanks to your excellent training in FIN 3403 at UCF, you realize that this whole life policy is basically term insurance plus a savings account.
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  • Spring '14
  • Byrd

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