Question

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 want to accumulate additional cash for a comfortable retirement.

*Richard would like to have paid up policy at the time of retirement.

*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.

Answer 1

Here is the answers of the following questions:-

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.