Question

Cloe is a 40 year old female in search of a $100,000 life insurance policy to meet her family’s financial needs in the unlikely case of her untimely demise. An insurance agent show her premium and benefit tables for three policies (below): an Annual Renewable Term Life policy, a Straight Term Life policy, and a Whole Life policy (Tables 1, 2, and 3 respectively). What would Cloe expect to pay in the first year of each policy if she is interested in coverage for the next 20 years? Explain what each policy offers that explains why they have different premiums.

Table 1

Annual Renewable Term Life Insurance Premiums: $100,000 Policy, Preferred Nonsmoker Rates
Policy Year	Age 25	Age 40	Age 60
	Female	Female	Female
1	$143	$178	$471
5	150	225	685
10	163	264	1,108
15	176	330	1,811
20	225	443	na

Table 2

Representative Level Premiums Term Life Rates: $100,000 Policy, Preferred Nonsmoker Rates
	10 Year	15 Year	20 Year	30 Year
Age	Female	Female	Female	Female
25	$108	$108	$108	$139
40	135	145	161	195
60	324	412	545	na

Table 3

Representative Whole Life Insurance Annual Premiums: $100,000 Policy, Preferred Nonsmoker Rates
	Annual Premiums	Premiums Paid through Year 20	Cash Value at Year 20	Dividend Value at Year 20	Paid-up Insurance at Year 20
Age	Female	Female	Female	Female	Female
25	$956	$19,120	$15,073	$5,240	$19,728
40	1,499	29,980	25,496	6,439	14,965
60	3,562	71,240	47,083	29,183	39,221

Answer 1

1. Annual renewable term life insurance (ART):- Cloe needs to pay $443 in the first year of policy if she is interested in coverage for the next 20 years

# ART is a form of term life insurance which offers a guarantee of future insurability for a set period of years. During the stated period, the policyholder will be able to renew each year without reapplying or taking another medical exam to reaffirm eligibility. The design of an ART is to cover short-term insurance needs. Thus they are the less expensive than whole life insurance concerning the premium charged.

however this policies are cheaper in earlier years, it gets expensive each time a renewal needs to be done because the person gets older and risk to the company accelerates.

2. Representative level premiums term life insurance:-  Cloe needs to pay $161 in the first year of policy.

# Representative level premiums term life insurance are insurances for which the premiums are guaranteed to remain the same throughout the contract, while the amount of coverage provided increases. This policy is included under term life insurance, meaning it provides coverage only for a specified duration and it has only a death benefit, as opposed to a savings component as in whole life coverage.

3. Representative whole life insurance:- Cloe needs to pay $1499 in the first year of policy.

# Whole life insurance provides coverage for the life of the insured. In addition to providing a death benefit, whole life also contains a savings component where cash value may accumulate. Thus it has the highest annual premiums as compared to the remaining two policies.These policies are also known as permanent or traditional life insurance.