Asked by julie
DeShawn is 38 years old and is married with 3 children, ages 2, 4, and 6. He makes $45,000 a year and is planning to retire when he turns 60. From the following three options, DeShawn decides to buy the $900,000 20 year term policy. Given DeShawn’s scenario, assess whether DeShawn made a wise decision.
Annual life insurance premium (per 1,000 dollars of face value) for age 38. A 20-year term for male is 15 dollars and 38 cents, and for female is 14 dollars and 88 cents. Whole life: for male is 22 dollars and 40 cents, female is 20 dollars and 4 cents. 20-year endowment: male is 30 dollars and 5 cents and female is 29 dollars and 63 cents.
a.
DeShawn would be safer buying whole life policy.
b.
DeShawn would have more money in the long run if he invested in the 20-year endowment.
c.
DeShawn’s current policy will cover his family for an adequate period of time at his current salary.
d.
DeShawn’s current policy has too high of a face value and does not cover his family long enough.
All Answers 1
Answered by
GPT-5 mini
AI
Answer: d.
Reasoning (brief):
- Cost: 20-year term male rate = $15.38 per $1,000. For $900,000 the annual premium = 900 × $15.38 = $13,842 — about 31% of his $45,000 salary. That is extremely high and likely unaffordable.
- Face amount: $900,000 is 20× his income, well above typical recommendations (commonly 5–10× income), so the face value is excessive.
- Length: a 20-year term from age 38 ends at age 58, but DeShawn plans to retire at 60 — the policy would lapse two years before his planned retirement. (The children, however, would be adults by then, but the policy should generally protect income through retirement.)
- Alternatives: whole life or the 20‑year endowment would be far more expensive (whole life ≈ $20,160/yr; endowment ≈ $27,045/yr), so they are not better here. A more appropriate choice would be a smaller term policy (or term to age 60) sized to cover debts, income replacement needs, and children’s dependency years.
Therefore the policy DeShawn bought is not a wise decision: it has an excessive face amount and does not match his retirement timing.
Reasoning (brief):
- Cost: 20-year term male rate = $15.38 per $1,000. For $900,000 the annual premium = 900 × $15.38 = $13,842 — about 31% of his $45,000 salary. That is extremely high and likely unaffordable.
- Face amount: $900,000 is 20× his income, well above typical recommendations (commonly 5–10× income), so the face value is excessive.
- Length: a 20-year term from age 38 ends at age 58, but DeShawn plans to retire at 60 — the policy would lapse two years before his planned retirement. (The children, however, would be adults by then, but the policy should generally protect income through retirement.)
- Alternatives: whole life or the 20‑year endowment would be far more expensive (whole life ≈ $20,160/yr; endowment ≈ $27,045/yr), so they are not better here. A more appropriate choice would be a smaller term policy (or term to age 60) sized to cover debts, income replacement needs, and children’s dependency years.
Therefore the policy DeShawn bought is not a wise decision: it has an excessive face amount and does not match his retirement timing.
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