Life Insurance

Student Name

Institutional Affiliation

Course

Professor

Date
 Life Insurance

a) Interest (i) : 1% per annum

Period (n) : 6yrs

PMT: $400 (per mth) x 12 = $4800

With TVM:

Future value (ordinary) = P x [(1+i)^n - 1] / i

4800 x [(1+0.01)^6 - 1] / 0.01

= $29,529.67

Without TVM: Gain/loss = Sum of paid value + Bonus * Surrender Value Factor

Surrender Value factor = 1.25

Gain/loss = 30,00 * 1.25

= 37,500

a) Compute the compound rate of return.

Future Value = PV (1 + r) ^n

100,000 = 57,600 (1 + r) ^ 6

= 57,600 + 57,600r^6

100,000 – 57600 = 57,600r^6

42400 = 57,600r^6

42,400/57,600 = 57600r^6/57,600

0.7361 = r^6

6√0.7361 = 6√6

0.95 = r
b) Compute the Bonus Sum

Surrender Value = Paid up Value + Bonus

Paid-up value = Premium * Period

= 4800 * 40 = 192,000

700,000 = 192,000 + B

700,000 – 192,000 = B

Bonus = 508,000

c) Two Implications for Retirement Planning

Life insurance is very important in terms of protecting your loved ones in case something
happens. Retirement planning is very important due to many reasons. Some of the implications
of retirement planning include one, it comes with a sense of financial security. This is because,
with the help of proper investments and retirement companies, one can gain important
knowledge on what type of savings and investments they can plan for. They also get advised on
the best account for such and their eligibility for various benefits (Mark Fonville, 2022). It also
lowers stress levels because there is little to no financial stress.

The second implication of retirement planning is as one gets older, there are a lot of decisions
that one makes (Mark Fonville, 2022). With a retirement plan, you are able to make better career
or professional financial decisions. For example, if one is employed, their plan might help them
decide if they would like to continue being employed or start their own businesses and also have
a rough measure of their profitability due to a good retirement plan. Such decisions have a big
impact on one’s finances and hence cannot be done without a proper future plan.

Surrendering a life insurance policy can be both beneficial and non-beneficial for the person.
Surrendering can be beneficial if the person needs immediate access to the cash since one gets
some amount back when surrendering. Another advantage is that they might get a better policy
that serves their needs in a better way compared to the current one and is less expensive
(LaGrotte, 2021).
 Some of the disadvantages of surrendering are one, the person might have a higher chance of
getting a loss especially if they choose to withdraw from the insurance in their starting years
(LaGrotte, 2021). They are also taxed highly and death benefits are not taxed. For example,
Rodney had just turned 30 and decided to withdraw. His accumulated amount paid was $56,700
but upon withdrawal, he would get less than that since he gets a less surrender value of $600. His
beneficiaries will also not get any death benefits in case death happens prematurely (Bond,
2022).
 References

Bond, C. (2022, November 17). When and why to surrender a life insurance policy.
https://www.forbes.com/advisor/life-insurance/surrender-life-insurance-policy/

LaGrotte, L. (2021, July 09). What happens when you surrender a life insurance policy?
https://www.lsa-llc.com/what-happens-when-you-surrender-a-whole-life-insurance-
policy/

Mark Fonville, C. (2022, November 28). 9 reasons why retirement planning is important.
https://www.covenantwealthadvisors.com/post/9-reasons-why-retirement-planning-is-
important