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Solutions Week 8 - of 45 $15,480(from Table 10.4 $1,812.45...

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Solutions Week 8 Chapter 10 4. (1) (2) (3) (4) (5) Net Premiums INVESTMENT FUND BALANCE AGE WHOLE TERM (2) - (3) 3% 6% 10% 35 1,316 163 1,153 1,187.59 1,222.18 1,268.30 36 1,165 166 999 2,252.19 2,354.45 2.494.03 37 1,127 169 958 3,306.49 3,511.20 3,797.23 38 1,085 176 909 4,341.96 4,685.41 5,176.86 39 1,043 185 858 5,355.96 5,876.01 6,638.34 40 994 196 798 6,338.58 7,074.46 8,179.98 41 945 214 731 7,281.66 8,273.78 9,802.07 42 896 231 665 8,185.06 9,475.11 11,513.78 43 847 249 598 9,046.55 10,677.50 13,322.96 44 798 265 533 9,866.94 11,883.13 15,241.56 45 736 288 448 10,624.39 13,070.99 17,258.51 46 672 310 362 11,315.98 14,238.97 19,382.56 47 609 336 273 11,936.65 15,382.69 21,621.12 48 546 369 177 12,477.06 16,493.27 23,977.93 49 482 406 76 12,929.65 17,563.43 26,459.32 50 407 432 -25 $13,291.79 18,590.73 29,077.75 Adjusted cost base (sum of column 2) = $13,668.00 Taxable CSV whole life at 50: $15,480 (from Table 10.4) - $13,668 = $1,812 After-tax cash value whole life, assuming a marginal tax rate
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Unformatted text preview: of 45%: $15,480 (from Table 10.4) - $1,812*.45 = $14,665 The whole life policy is better if the investment fund earns 3%, and the term life policy is better if the fund earns 6% or 10%. Chapter 11 3. The 80% rule is the minimum percentage of the replacement value of the house, used by most insurance companies as a standard for partial damage coverage. In the event of such losses, unless the insured has purchased a coverage that equals to at least 80% of the replacement value of the house, he or she will only be covered proportionally to the percentage of the required 80%. Min. Coverage Required = $210,000 * .8 = $168,000 The insurance company will pay: ($10,000 * $100,000/$168,000) - $500 = $5,452. 4. Their current coverage = $80,000 * (1.05)10 = $130,312. Min. Coverage required = $180,000 * .8 = $ 144,000. The insurance company will pay: ($80,000 * $130,312/$144,000) - $500 = $ 71,896. Assumption: $500 Deductible ....
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