Richard, age 35, owns an ordinary life insurance policy in the amount of $250,000. The policy...

Richard, age 35, owns an ordinary life insurance policy in the amount of $250,000. The policy is a participating policy that pays dividends. Richard has a number of financial goals and objectives. For each of the following situations, identify a dividend option that could be used to meet Richard's goals. Treat each situation separately.
a. Richard finds the premium payments are financially burdensome. He wants to reduce his annual premium outlay.
b. Richard has leukemia and is uninsurable. He needs additional life insurance protection.
c. Richard wants to accumulate additional cash for a comfortable retirement.
d. Richard would like to have a paid-up policy at the time of retirement.
e. Richard has substantial earned income that places him in a high marginal income-tax bracket. He wants the insurer to retain the dividends, but he does not want to pay income tax on the investment earnings.

Expert Solution

a. The dividend option can be used to pay the premium thereby he can pay his annual premium without burden. He can choose annual dividend option.

b. Since lukemia is uninsured, he can take the dividends and make us of it purchase another one that covers lukemia.

c. Here richard should take the annual dividends and investment in a retirement fund or 401(k) plan so that tis could fund his retirement plan.

d. In this case he can reinvest the dividends is the plan so that the policy becomes paid up during his retriement.

e. Becasue of his income tax obligation, he can consider to reinvest the dividends to save on the dividend distribution tax and also reduce his tax.

keosha answered 2 years ago

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