Gage Gibson HW7

Homework Chapter 11 - Life Insurance Case Application a-e A: o 5 year renewable and convertible because of the small premium and conversion potential B: o Ordinary because it is more affordable and she can surrender it for cash when he reaches college age. C: o Universal life insurance, permits her to take cash out and she can pay a reduced premium D: o Cash value insurance is more expensive, and may not meet all her needs E: o Probably can be converted to a life/universal policy Review Question 1 A: o The death of a family head with outstanding unfulfilled financial obligations, or the death of a person that creates negative business consequences. B: o Loss of income, leftover debts or expenses, can't continue to maintain standard of living, plus the usual grief from inconsolable loss. C: o If people depend on your income to survive, you need life insurance to replace that loss of income if the worst were to happen. Application Questions 2, 7 2: o A: 1: as it rises, the value of life insurance will fall, meaning the present value will drop. 2: Since present value is going up, the amount to own will also increase 3: Opposite of the one above, if income is lower then amount of insurance needed will decrease o B: Doesn't account for the non-financial cost of a life, Doesn't take personal circumstances into consideration, doesn't take short term needs into account, doesn't consider inflation
7: o A: low premiums so he doesn't have to put insurance above family costs, but it will still help with large costs, such as the house, if the worst happens. His family will also be able to use the money as they see fit (like for college) as opposed to it being received by institutions. o B: Can be used for retirement once it's paid back at maturity. Will also take care of his family. o C: Most likely to be used to pay off the mortgage o D: Will keep his family supported
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