Financial Algebra© Cengage/South-Western Slide 1

9-4

LIFE INSURANCE

Compute the cost of different types of life insurance.

Understand advantages and disadvantages of different types of life insurance.

OBJECTIVES

Financial Algebra© Cengage Learning/South-Western Slide 2

beneficiarypremiummortality tableface valueterm life insurancegroup term life insurancelevel term insurance

decreasing term insuranceincreasing term insurancepermanent life insurancewhole life insurancecash valueuniversal life insurancevariable life insurance

Key Terms

Financial Algebra© Cengage Learning/South-Western Slide 3

Example 1

Jack is 40 years old. In ten years, his house will be paid off and his daughter will have completed college. He wants to take out a 10-year level term insurance policy with a face value of $750,000. The monthly premium is $76. What will be Jack’s total cost over the 10-year period?

Financial Algebra© Cengage Learning/South-Western Slide 4

Example 2

Gabriella’s whole life premium increased from $123 to $166 per month when she increased the policy’s face value. Find the percent increase to the nearest percent.

Financial Algebra© Cengage Learning/South-Western Slide 5

EXAMPLE 3

Mario has a universal life insurance policy with a face value of $250,000. The current cash value of the policy is $8,260. If the premium is $97 per month, for how many months can the cash value be used to pay the premium?

Financial Algebra© Cengage Learning/South-Western Slide 6

Greatest Integer Function

If a number is not an integer, the greatest integer of that number is the integer to its left on the number line.

Financial Algebra© Cengage Learning/South-Western Slide 7

Joe is an insurance agent. Zach, a 45-year-old man, inquires about a life insurance policy. How can Joe assess the risk his company is taking on when they offer a life insurance policy to Zach?

EXAMPLE 4

Financial Algebra© Cengage Learning/South-Western Slide 8

The mortality rate for a certain female elderly age category is 0.043. A company insures 7,000 people in this category. About how many of them will die before their next birthday?

CHECK YOUR UNDERSTANDING

Financial Algebra© Cengage Learning/South-Western Slide 9

EXAMPLE 5

The Umbrella State Insurance Company sells a five-year term insurance policy with face value of $150,000 to a 41-year-old man for an annual premium of $648. What is the profit the company receives from selling this policy for each age of death?

Financial Algebra© Cengage Learning/South-Western Slide 10

In Example 5, you witnessed how the company takes on a great risk when they sell a policy. The mortality rates and amount of profit are shown in the table. If the company sold 10,000 of the same policies, what would their expected profit be for the 10,000 policies?

EXAMPLE 6