Beth purchased a $50,000 nonparticipating whole life insurance policy.The annual premium was $1,278.The cash value of the policy after 10 years will be $13,740.The future value of $1 deposited at the start of the year for 10 years,assuming 5 percent interest,is $13.207.What is the traditional net cost of this policy,per thousand per year,over the first 10 years the policy is in force?

Question

Quizplus · Accepted Answer

The traditional net cost per thousand per year can be calculated using the following formula:
Traditional net cost = Total premium paid - Total dividends received + Increase in cash value / Face amount of policy / Number of years

Total premium paid = $1,278 x 10 = $12,780
Increase in cash value = $13,740 - $0 (since no dividends were received) = $13,740
Face amount of policy = $50,000
Number of years = 10

Total dividend received = 0

Using the formula:
Traditional net cost = ($12,780 - $0 + $13,740) / $50,000 / 10
Traditional net cost = $1.92 per thousand per year

Therefore, the best choice is (C) -$1.92.

Beth Purchased a $50,000 Nonparticipating Whole Life Insurance Policy