Question

In: Operations Management

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.

Solutions

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.


Related Solutions

Richard age 35 owns an ordinary life insurance policy in the amount of $250,000.
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 goal. Treat each situation separately.*Richard finds the premium payments are financially burdensome. He wants to reduce his annual premium outlay.*Richard has leukemia and is uninsurable. He needs additional life insurance protection.*Richard...
A participating ordinary life policy in the amount of $10,000 is sold to an individual, age...
A participating ordinary life policy in the amount of $10,000 is sold to an individual, age 35. The following cost data are given: Annual premium $230 Total dividends for 20 years $1,613 Cash value at end of 20 years $3620 Accumulated value of the annual premiums at 5 percent for 20 years $7,985 Accumulated value of dividends at 5% for 20 years $2,352 Amount to which $1 deposited annually at the beginning of each year will accumulate in 20 years...
Matthew owns an insurance policy (face amount of $2,165,500) on the life of Emily with Uma...
Matthew owns an insurance policy (face amount of $2,165,500) on the life of Emily with Uma listed as the designated beneficiary. If Emily dies first and the $2,165,500 is paid to Uma, how much is included in the following gross estates? If an amount is zero, enter "0". a. Matthew's gross estate? b. Emily's gross estate?
Opal, age 75, has a $60,000 ordinary life insurance policy that has a cash value of...
Opal, age 75, has a $60,000 ordinary life insurance policy that has a cash value of $35,000. Opal is concerned about the cost of long-term care in a nursing home. A new agent of a national life insurer persuaded her to transfer the $35,000 into a deferred annuity. The agent told Opal that the annuity pays lifetime income benefits and also allows her to withdraw the $35,000 without penalty if she should enter a nursing home. After the policy was...
Briefly explain the basic characteristics of ordinary life policies. Why does an ordinary life insurance policy...
Briefly explain the basic characteristics of ordinary life policies. Why does an ordinary life insurance policy develop a legal reserve? Explain the situations that justify the purchase of ordinary life insurance. What is the major limitation of ordinary life insurance?
Susan, age 35, is a single parent with two preschool children. She would like to purchase a traditional life insurance policy with a face amount of $1,000,000.
Susan, age 35, is a single parent with two preschool children. She would like to purchase a traditional life insurance policy with a face amount of $1,000,000. She is considering the following policies:1. Five-year renewable term insurance that is renewable until age 652. Ordinary life insurance3. Twenty-payment whole life insurance4. Life paid-up-at-age-65Required:a. Identify which of the above insurance policies require the highest and lowest current annual premium outlay, respectively. Justify with answer. b. If Susan has only a limited amount...
Pat contracts with an Ajax Insurance Company agent for a $50,000 ordinary life insurance policy.
Fact Pattern #1:Pat contracts with an Ajax Insurance Company agent for a $50,000 ordinary life insurance policy. The application form is filled in to show Pat's age as 32. In addition, the application form asks whether Pat has ever had any heart ailments or problems. Pat answers no, forgetting that as a young child he was diagnosed as having a slight heart murmur. A policy is issued. Three years later, Pat becomes seriously ill and dies. A review of the...
A life insurance company sells a $250,000 1-year term life insurance policy to a 20-year old...
A life insurance company sells a $250,000 1-year term life insurance policy to a 20-year old male for $350. The probability this person survives the year is 0.98734. Compute the expected value of this policy to the insurance company to the nearest 0.01.
Maxwell Simmons has a life insurance policy with a face value of $250,000 and a cash...
Maxwell Simmons has a life insurance policy with a face value of $250,000 and a cash value of $77,000. Maxwell was killed in an auto accident shortly after borrowing $56,000 from his policy. Assuming interest had been paid but no principal was repaid, how much would Maxwell's beneficiary receive? A. $194,000 B. $173,000 C. $250,000 D.$117,000
What is the tax significance of the face amount of a life insurance​ policy? A. The...
What is the tax significance of the face amount of a life insurance​ policy? A. The face amount of life insurance is excluded from the gross income of a beneficiary if the amount is paid upon the death of the insured and the beneficiary is any corporation. B. The face amount of life insurance is included in the gross income of a beneficiary if the amount is paid prior to death of the insured. If the amount paid exceeds the...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT