Principles of Risk Management and Insurance 13th Edition by George Rejda,Michael McNamara

Exercise 2

Todd, age 40, is considering the purchase of a $100,000 participating ordinary life insurance policy. The annual premium is $2280. Projected dividends over the first 20 years are $15,624. The cash value at the end of 20 years is $35,260. If the premiums are invested at 5 percent interest, they will grow to $79,159 at the end of 20 years. If the dividends are invested at 5 percent interest, they will accumulate to $24,400 at the end of 20 years. A $1 deposit at the beginning of each year at 5 percent interest will accumulate to $34.719 at the end of 20 years.
a. Based on the traditional net cost method, calculate the cost per $1000 per year.
b. Based on the surrender cost index, calculate the cost per $1000 per year.
c. Based on the net payment cost index, calculate the cost per $1000 per year.