Expert answer:INSURANCE POLICIES

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App Questions 11
6.
Life insurance policies have different characteristics. For each of the following,
identify the life insurance policy that meets the description:
a
A policy where the face amount of insurance increases if the investment results
are favorable
b A policy that can be used to insure the human life value of an individual, age 35,
at the lowest possible annual premium
c
A policy that permits the policyholder to determine how the premiums are to be
invested
d A policy that allows cash withdrawals for a down payment on a home or
payment of college tuition
e
A policy that is sold to applicants whose mortality experience is expected to be
lower than average
f
A policy in which premiums are lower for the first 3 to 5 years and higher
thereafter, which may appeal to insureds whose incomes are expected to
increase
g
A policy designed to pay estate taxes upon the death of the last surviving
spouse
Case Questions
Sharon, age 28, is a single parent who earns $30,000 annually as a secretary at a local
university. She is the sole support of her son, age 3. Sharon is concerned about the financial
well-being of her son if she should die. Although she finds it difficult to save, she would like to
start a savings program to send her son to college. She is currently renting an apartment but
would like to own a home someday. A friend has told her that life insurance might be useful in
her present situation. Sharon knows nothing about life insurance, and the amount of income
available for life insurance is limited. Assume you are a financial planner who is asked to make
recommendations concerning the type of life insurance that Sharon should buy. The following
types of life insurance policies are available:
•
Five-year renewable and convertible term
•
Life-paid-up-at-age 65
•
Ordinary life insurance
•
Universal life insurance
a
Which of these policies would best meet the need for protection of Sharon’s son
if she should die prematurely? Explain your answer.
b
Which of these policies best meets the need to accumulate a college fund for
Sharon’s son? Explain your answer.
c
Which of these policies best meets the need to accumulate money for a down
payment on a home? Explain your answer.
d
What major obstacle does Sharon face if she tries to meet all of her financial
needs by purchasing cash-value life insurance?
e
Assume that Sharon decides to purchase the 5-year term policy in the amount
of $300,000. The policy has no cash value. Identify a basic characteristic of a
typical term insurance policy that would help Sharon accumulate a fund for
retirement.
…
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