UNIVERSITY OF ILLINOIS AT URBANA CHAMPAIGN College of Business D E PAR T M E N T O F F I NAN C E Finance 230 Fall 2007 1 A 35 year old man has a Type B Increasing Death Protection universal life insurance policy with a face value of 100 000 and a cash value of 15 000 at the beginning of the year He pays a premium of 1 533 a year The mortality charge is 1 35 per 1 000 in coverage the expense loading is 4 5 of the premium there are no loans or withdrawals and the policy earned a 7 rate of return this year What is the end of the year cash value A D 2 Assignment 8 Due October 26 2007 16 329 17 541 B E 17 472 None of the above C 17 250 If an individual wants no uncertainty in an insurance policy which one of the following types of life insurance would he or she be most comfortable with A Variable Life B Universal Life D Whole Life E Variable Universal C Re entry Term For the next seven questions please consult the whole life insurance policy of John Doe located in Appendix E and the chapters on life insurance in the textbook To simplify the calculations assume that John Doe has selected the Premium Payment option for dividends item 4 2 on page 741 and ignore the Premium Refund at Death provision the last point under item 3 1 on page 741 and the Dividend at Death provision item 4 4 on page 741 Note that provision 1 4 on page 740 does apply Unless otherwise indicted he has made all premium payments when due and kept the policy in force until his death 3 John Doe pays his first twelve premiums without a hitch After watching the World Series of Poker on television however John decides to stop paying the premium on August 1 2007 without telling his wife and without selecting a surrender option He then begins to enter the tournament every year for a 1 533 fee the same as he was paying on his life insurance Obviously John never wins and because of the stress suffers a stroke and dies on March 18 2017 How much will his wife receive as a death benefit A D 4 B E 14 515 None of the above C 43 700 John Doe commits suicide on August 1 2007 How much will his wife Jane receive from the insurance company A D 5 0 100 000 1 533 43 700 B E 14 515 None of the above C 18 396 Assume that the company paid a total of 6 000 in dividends in the first twelve years If John Doe surrendered the policy on August 1 2007 for the cash value how much of the proceeds will be taxable income for him A D 0 31 304 B E 2 119 None of the above C 14 515 6 If John had lied about his age when he bought the life insurance policy in 1995 which of the following would happen if he died on October 18 2007 and the insurance company then found out that he was 45 years old rather than 35 when he purchased the policy A The insurance company would have to pay Jane the full benefit because it only had two years to cancel the policy B The insurance company will increase the death benefit to reflect the age John actually was when he purchased the policy C The insurance company won t pay any benefit to Jane because John lied about a material fact and therefore a valid contract never existed D The insurance company will reduce the death benefit to reflect the age John actually was when he purchased the policy E None of the above 7 John surrenders the policy on August 1 2020 and accepts the cash value option If he dies from an illness on April 14 2025 how much will his wife Jane receive as a death benefit A D 8 38 328 None of the above C 47 545 379 677 B E 402 None of the above C 572 John surrenders the policy on August 1 2005 and selects the paid up insurance option He dies in a car accident on August 15 2037 If his wife Jane has an adjusted age of 64 at this point what is the minimum monthly payment she will receive if she elects to receive a life income with a 20 year period certain A D 10 B E John dies on August 2 2039 from a car accident His wife Jane with an adjusted age of 75 elects to receive joint and survivor life income with her son Jack who has adjusted age of 55 What is the minimum monthly benefit they will receive A D 9 0 71 800 0 2 051 04 B E 170 92 None of the above C 181 76 According to Mil Grauer the guest lecturer on October 12 how much in savings does the average 35 person have in reserve A B C D E None Approximately 2 months of income Approximately 6 months of income Approximately 1 year of income Over 2 years of income
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