Joshua's annual salary is $72,000. To replace five years of his salary, the insurance policy needs to be for $72,000 * 5 = $<<72000*5=360000>>360,000.
Since Joshua has a high-risk job, the insurance company charges him an extra 20% on top of his premium rate. Let's call the original premium rate x.
So the premium rate for Joshua's policy is x + 0.2x = 1.2x.
The premium rate for a whole life policy for a 25-year-old male is $15.38.
Therefore, to cover $360,000, the annual premium for the whole life policy is 360,000 / 1000 * $15.38 = $5,564.8.
The premium rate for a 20-payment life policy for a 25-year-old male is $26.40.
Therefore, to cover $360,000, the annual premium for the 20-payment life policy is 360,000 / 1000 * $26.40 = $9,504.
The premium rate for a 20-year endowment policy for a 25-year-old male is $34.02.
Therefore, to cover $360,000, the annual premium for the 20-year endowment policy is 360,000 / 1000 * $34.02 = $12,247.2.
Out of the three options, the cheapest policy is the whole life policy with an annual premium of $5,564.8.
Thus, the correct answer is a. $1,107.
Joshua is 25 years old and has a high risk job making $72,000 a year. The insurance company charges him an extra 20% on top of his premium rate because of his job. If Joshua wants a policy that will replace five years of his salary, what is the annual premium for the cheapest policy?
For age 25, whole life for male is 15 dollars and 38 cents, 20-payment life is 26 dollars and 40 cents, and 20-year endowment is 34 dollars and 2 cents.
a.
$1,107
b.
$1,328
c.
$5,537
d.
$6,644
1 answer