A policyholder wishes to annuitize the cash value of her insurance policy at retirement. She desires an annual payment of $95,000 per year and the cash value is expected to be $1,100,000 at retirement. Approximately how many payments can she expect to receive if annuity interest rates are 5.122%?

Question

Quizplus · Accepted Answer

Using the formula PVIFA = (1-(1/(1+r)^n))/r, where r = 5.122% and PVIFA = 10.545, we can solve for n by dividing $1,100,000 by the desired annual payment of $95,000 and then multiplying by PVIFA. This gives us an approximate value of 18. Therefore, the policyholder can expect to receive 18 payments before the cash value is fully annuitized.

A Policyholder Wishes to Annuitize the Cash Value of Her