HACE 3200 1nd Edition Lecture 20 Outline of Last Lecture I Clauses II Riders III Health Care Outline of Current Lecture I Practice Problems Current Lecture LIFE INSURANCE PRACTICE PROBLEMS 1 Grace s aunt Selina passed away Grace was named the sole beneficiary to her life insurance policy The policies face value is 980 000 Rather than take a lump sum amount Grace has elected to accept annual annuity payments from the policy She anticipates interest being credited to the account in the amount of 8 5 annually If Grace receives annual payments of 85 000 how many payments will she receive o PVA 980 000 I Y 8 5 PMT 85 000 CPT N 47 95 YRS 2 Joetta is a single parent with two children and earns 45 000 per year Her employer s group life insurance policy would pay 2 5 times her salary She also has 60 000 saved in a 401 k plan 5 000 in mutual funds and a 3 000 CD that could be used to provide for her children She wants to purchase term life insurance for 15 years until her youngest child is self supporting Assuming she can receive a 3 rate of return on insurance proceeds use the earnings multiple approach to calculate how much more insurance Joetta should buy o 45 000 2 5 112 500 60 000 401K 5 000 MF 3 000 CD 180 500 45 000 74 26 DROP 33 300 PMT N 15 3 I Y CPT PVA PVA 397 533 24 180 500 PREVIOUS SECURITY 217 033 24 TO INSURE 3 Cedric has a 150 000 whole life insurance policy with 35 000 cash value He decides to borrow 15 000 against the policy If Cedric dies and has only paid back 7 000 How much will his beneficiaries receive These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute o 150 000 BORROWED 15 000 PAID 7 000 OWES 8 000 150 000 8 000 BENEFICIARY RECEIVES 142 000 4 Oliver s uncle Rodrick passed away Oliver was named the sole beneficiary to his life insurance policy The policies face value is 470 000 Rather than take a lump sum amount Oliver has elected to accept annual annuity payments from the policy He anticipates interest being credited to the account in the amount of 7 8 annually If Oliver receives annual payments of 75 000 how many payments will he receive o PVA 470 000 I Y 7 8 PMT 75 000 CPT N 8 933 YRS 5 Alice and Robbie have 8 year old triplets Robbie earns 78 000 per year Alice works part time and earns 16 000 per year They intend to purchase term life policies for 15 years until the children are self supporting They anticipate a rate of return on the settlement of 6 5 Using the earnings multiple approach calculate how much individual life insurance should be taken out on each parent o ROBBIE 78 000 8 20 DROP 62 400 PMT ALICE 16 000 8 12 800 I Y 6 5 N 15 CPT PVA ROB 586 726 54 ALICE 120 354 16 6 Barbara is a single parent with three children and earns 65 000 per year Her employer s group life insurance policy would pay 2 0 times her salary She also has 80 000 saved in a 401 k plan 15 000 in mutual funds and a 6 000 CD She wants to purchase term life insurance for 10 years until her youngest child is self supporting Assuming she can receive an 8 rate of return on insurance proceeds use the earnings multiple approach to calculate how much more insurance Barbara should buy o 65 000 2 130 000 80 000 15 000 6 000 231 000 I Y 8 N 10 PMT 65 000 78 50 700 CPT PVA 340 201 13 231 000 109 201 13 7 Leslie s uncle Albert passed away Leslie was named the sole beneficiary to his life insurance policy The policies face value is 500 000 Rather than take a lump sum amount Leslie has elected to accept 20 annuity payments from the policy She anticipates interest being credited to the account in the amount of 8 annually What will be Leslie s annual annuity payments from this policy o PVA 500 000 N 20 I Y 8 CPT PMT 50 926 10 8 Smendrake s uncle Umberto passed away Smendrake was named the sole beneficiary to his life insurance policy The policies face value is 850 000 Rather than take a lump sum amount Smendrake has elected to accept 25 annuity payments from the policy He anticipates interest being credited to the account in the amount of 7 2 annually What will be Smendrake s annual annuity payments from this policy o PVA 850 000 N 25 I Y 7 2 PMT 74 257 88
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