Use the table to answer the question.

Question

The sample life insurance premium table illustrates the monthly premium for every $25,000 of
coverage.

Age
Under 24 $3.00
24 to 30
31 to 40
41 to 50

$4.00
$5.50
$7.50

Nonsmoker Male Nonsmoker Female Smoker Male Smoker Female
$4.50
$6.15
$9.00
$13.00

$2.50
$3.50
$4.40
$6.75

$4.00
$5.25

$6.50
$12.00

Max is 33 and smokes. How much would he save next year on a $75,000 policy if he quit
smoking compared to if he continued smoking? Explain how you got your answer.

Answer 1

To calculate the savings Max would achieve by quitting smoking, we first need to determine the monthly premium for a $75,000 life insurance policy both as a smoker and as a nonsmoker.

1. Determine the coverage amount in terms of $25,000 increments: \[ \text{Coverage} = 75,000 \text{ / } 25,000 = 3 \text{ increments} \]

2. Find the premiums:

   • For smokers, at age 33, the premium per increment of $25,000 is:

     • Smoker Male: $9.00

   • For nonsmokers, at age 33, the premium per increment of $25,000 is:

     • Nonsmoker Male: $4.50

3. Calculate the total monthly premium:

   • Smoker Premium: \[ \text{Total monthly premium for smoker} = 3 \times 9.00 = $27.00 \]

   • Nonsmoker Premium: \[ \text{Total monthly premium for nonsmoker} = 3 \times 4.50 = $13.50 \]

4. Calculate the annual premium:

   • Annual premium for smoker: \[ \text{Annual premium for smoker} = 27.00 \times 12 = $324.00 \]

   • Annual premium for nonsmoker: \[ \text{Annual premium for nonsmoker} = 13.50 \times 12 = $162.00 \]

5. Calculate the savings by quitting smoking: \[ \text{Savings} = \text{Annual premium for smoker} - \text{Annual premium for nonsmoker} \] \[ \text{Savings} = 324.00 - 162.00 = $162.00 \]

In summary, if Max quits smoking, he would save $162.00 next year on a $75,000 policy compared to if he continued smoking.