Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)
7th Edition
ISBN: 9780357033609
Author: Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher: Cengage Learning
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Question
Chapter 8, Problem 5FPE
a.
Summary Introduction
To contrast: The different types of life insurance policy available for an investor.
b.
Summary Introduction
To identify: The advantages and disadvantages of different types of life insurance policies.
c.
Summary Introduction
To discuss: The superiority of one policy over the other policy
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Titan completes a $300,000 life insurance application form with his insurance agent Esther. Esther
informs him that the insurer will request an attending physicians' statement (APS). Titan inquires about
the purpose of an APS.
Which of the following is Titan's CORRECT response?
Select one correct answer from the list
1. An APS is needed to obtain a summary of Titan's medical history.
2 An APS is needed to obtain a summary of Titan's family medical history.
3.
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An APS is needed to obtain more information about Titan's lifestyle.
An APS is needed to find out why Titan's driver's license was suspended.
000 0
Martha and Louis Mitchell are a dual-career couple who just had their first child. Louis, age 30, already has a group life insurance policy, but Martha's employer does not offer a life insurance benefit. A financial planner is recommending that the 27- year-old Martha buy a $250,000 whole life policy with an annual premium of $1,670 (the policy has an assumed rate of earnings of 5 percent a year). Help Martha evaluate this advice and decide on an appropriate course of action .
Choosing among types of life insurance. Camila Rodriguez, a 38-year-old widowed mother of three children (ages 12,10, and 4), works as a product analyst for a major consumer products company. Although she’s covered by a group life insurance policy at work, she feels, based on some rough calculations, that she needs additional protection. Leon Thompson, an insurance agent from Insurance Advisers, has been trying to persuade her to buy a $150,000, 25-year, limited payment whole life policy. However, Camila favors a variable life policy. To further complicate matters, Camila’s father feels that term life insurance is more suitable to the needs of her young family.
a. Explain to Camila the differences between (i) a whole life policy, (ii) a variable life policy, and (iii) a term life policy.
b. What are the major advantages and disadvantages of each type of policy?
c. In what way is a whole life policy superior to either a variable life or term life policy?In what way is a variable…
Chapter 8 Solutions
Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)
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- Joetta Hernandez is a single parent with two children and earns $67,500 a year. Her employer's group life insurance policy would pay 2.5 times her salary. She also has $90,000 saved in a 401(k) plan, $7,500 in mutualfunds, and a $4,500 certificate of deposit. She wants to purchase term life insurance for 15 years until her youngest child is self-supporting. She is not concerned about her outstanding mortgage, as the children would live with her sister in the event of Joetta's death. Assuming she can receive a 6 percent after-tax, after-inflation return on insurance proceeds, use the earnings multiple method to calculate her insurance need. How much more insurance does Joetta need to buy? What other information would you need to know to use the needs approach to calculate Joetta's insurance coverage? Assuming she can receive a 6% after-tax, after-inflation return on insurance proceeds and using the earnings multiple method, Joetta's insurance need is $_____arrow_forwardPhoenix is the owner of Recycle Plus Inc. a successful recycling company. Phoenix earns over $1 million annually and currently has a $3 million universal life (UL) insurance policy through Stardust Life. After meeting with his insurance agent Leroy, he decides to apply for another UL policy for an additional $4 million death benefit. Stardust Life has a retention limit of $5 million. Assuming that Phoenix is insurable, how will Stardust Life handle the application? Select one correct answer from the list 1. They will agree to insure him for an additional $2 million but he will have to apply for the extra $2 million with another insurance company. 2. They will agree to insure him for an additional $2 million and they will ask a reinsurer to insure him for the extra $2 million. 3. They will agree to insure him for $4 million. They will refuse to insure him, and he will have to apply for insurance elsewhere. 4. 27 O Oarrow_forwardSophie Lopez is a 72-year-old widow who has recently been diagnosed with Alzheimer’s disease. She has limited financial assets of her own and has been living with her daughter Felicity for two years. Her income is $850a month in Social Security survivor’s benefits. Felicity wants to make surethat her mother will be taken care of if Felicity should die prematurely. Felicity, 40, is single and earns $55,000 a year as a human resources manager for a small manufacturing firm. She owns a condo with a current market value of $100,000 and has a $70,000 mortgage. Other debtsinclude a $5,000 auto loan and $500 in various credit card balances. Her 401(k) plan has a current balance of $24,500, and she keeps $7,500 in a money market account for emergencies. After talking with her mother’s doctor, Felicity believes that her mother will be able to continue living independently for another two to three years. She estimates that her mother would need about $2,000 a month to cover her living…arrow_forward
- Ms. Tim has given birth to a baby girl who she wants to pursue medicine when she turns 18. From the birth date, she decides to set aside some money so that she can pay for her daught er's subsis- tence and accommodation expense, when she enters a university to pursue her medical degree. She anticipates that her daughter will be in the medical program for 9 years including 3 years of practical training program. Therefore, she wants to pay her daught er $6000 semi-annually and the first pay ment will be made at the age of 18. Calculate the amount Ms. Tim needs to set aside at t he birth of her daught er with 8% interest compounded quarterly.arrow_forwardChristina is a divorced independent marketing consultant age 32, in excellent health, with two young children. She took out a $100,000 whole life insurance policy seven years ago, before the children were born. At that time she was employed in an administrative capacity in a real estate office and had a limited income. She appreciated the value of permanent life insurance but was concerned about her ability to afford whole life premiums over the long-term. Consequently, she chose a dividend option that applied the annual policy dividend to reduce the premium due each year. Christina is now doing much better financially and can easily afford the annual premium. With two children dependent on her she is concerned, however, that the death benefit of her policy should increase with inflation over the long-term. What dividend option could Christina select to meet her current needs? A) The premium reduction dividend option B) The cash dividend option C) The accumulation dividend option D)…arrow_forwardRaj Shah, aged 36 years, is employed with a MNC. His wife Pooja, aged 34 years, is also working part - time. The couple has two children - daughter Rima aged 7 years and son Ansh aged 4 years. Raj and Pooja require your help to make a few financial decisions. (You can make any assumptions to further build up your case)a. Raj and Pooja want to invest for their children’s higher education for the long term (over 12 to 15 years). Develop a plan so that they can accumulate a sufficient education corpus. b. Raj wants to take a Life Insurance cover of Rs 1.5 crore. Advise him whether he should go for a ULIP or a term insurance.arrow_forward
- Marthda and Louis Mitchell are a dual-career couple who just had their first child. Louis, age 30, already has a group life insurance policy, but Martha's employer does not offer a life insurance benefit. A finanical planner is recommending that the 27-year-old Martha buy a $250,000 whole life policy with an annual preminum of $1,670 (the policy has an assumed rate of earnings of 5 percent a year). Help Martha evaluate this advice and decide on an appropriate course of actionarrow_forwardDaniel and Esther, a married couple in their fifties, meet with Gunther, their insurance agent, to discuss Daniel's insurance needs. Daniel states that, among other assets, he would like Esther to receive a rental property that he purchased several years ago for $500, 000. The property is currently worth $1, 300, 000. If Daniel's tax rate is 40%, how much insurance would he need to purchase to cover the taxes payable on the property upon his death? Select one correct answer from the list 1. So 2. $160,000 3. $260,000 4. $320,000 ΟΟΟarrow_forwardAnn, who is age 22, just returned to the work force last week after giving birth to twins. She has limited disposable income. She is healthy now but her family history indicates the incidence of stroke. She would like some insurance coverage for her children’s education in the event of her death. What kind of plan would you recommend to Cindy?arrow_forward
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