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 65

2. Ordinary life insurance

3. Twenty-payment whole life insurance

4. Life paid-up-at-age-65

Required:

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 of income to spend on life insurance, advise her which life insurance policy she should choose. (1 mark)

c. Suggest Susan that any TWO additional terms about the insurance policy she should know before purchasing the insurance plan in part b. (Total 9 marks)

Expert Solution

A. Minimum the number of payments, the higher the amount of the premium. Hence, the highest annual outlay will be for Twenty-payment whole life insurance as the number of payments are only 20 as compared to other plans given in the option.

The lowest outlay will be of ordinary life insurance plan as the insuree needs to pay the premium till the maturity of a plan.

B. If you have limited income to spend on life insurance plan then you have to take ordinary life insurance and opt for regular payment options. Usually, ordinary insurance ( Term insurance) has low premium rates as compared to other life insurance plans. Hence, a person can feel secure and can opt for a plan as well while keeping the premium low and pay easily.

C. Benefits attached with insurance plan and the coverage tenure are the two terms I should like to provide information about to insuree before suggesting any plans.

jeff jeffy answered 1 year ago

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Question

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.

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Expert Solution

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