Question

In: Finance

You have the opportunity to purchase a $150,000 Term life insurance policy for $145 per year...

You have the opportunity to purchase a $150,000 Term life insurance policy for $145 per year for the next four years. Your bank has offered you credit life insurance in conjunction with a $12,000 four-year (48-month) loan you are applying for. The credit life insurance premium would be a one-time-up-front fee of $325. What is the annual cost per $1,000 of insurance for the term life insurance and the credit life insurance? $0.97 per thousand for Term Life Insurance and $6.77 per thousand for Credit Life Insurance. $6.77 per thousand for Term Life Insurance and $0.97 per thousand for Credit Life Insurance. $0.08 per thousand for Term Life Insurance and $0.18 per thousand for Credit Life Insurance. $0.18 per thousand for Term Life Insurance and $0.08 per thousand for Credit Life Insurance.

Solutions

Expert Solution

Answer:

Correct answer is:

$0.97 per thousand for Term Life Insurance and $6.77 per thousand for Credit Life Insurance.

Explanation:

Term life policy:

Annual premium for $150,000 term life policy for $145 per year

Premium per thousand for Term Life Insurance = 145 / 150000 * 1000 = $0.97

Credit Life Insurance:

Sum assured = $12,000

Premium for 4 years = 325

Premium per thousand for credit life insurance = 325 /4 / 12000 * 1000 =$6.77

As such option A is correct and other options B, C, D and E are incorrect.


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