Question

Because Aaron, age 32, is a smoker, he must pay more for life insurance. Given that Company A charges 20% more for smokers, Company B charges 18% more for smokers, Company C charge 25% more for smokers and Company D charges 15% more for smokers, Aaron decides to buy his $250,000 policy from Company B. Which of the following statements is true?
A 5-column table with 3 rows titled Annual Insurance Premiums (per 1,000 dollars of face value) 10 year term. Column 1 is labeled age with entries 30, 31, 32. Column 2 is labeled Company A with entries 1.30, 1.57, 1.86. Column 3 is labeled Company B with entries 1.29, 1.55, 1.86. Column 4 is labeled Company C with entries 1.40, 1.64, 2.07. Column 5 is labeled Company D with entries 1.49, 1.88, 2.25.
a.
Aaron is paying the smallest premium possible with Company B.
b.
Aaron is paying $93 more in premiums than he would with Company A.
c.
Aaron is paying $129 more in premiums than he would with Company C.
d.
Aaron could have chosen any company because the premiums are all the same.

Answer 1

Answer: a.

Work:
- Age 32 base rates per $1,000: A = 1.86, B = 1.86, C = 2.07, D = 2.25.
- Smoker rates per $1,000:
- A: 1.86×1.20 = 2.232 → 2.232×250 = $558.00
- B: 1.86×1.18 = 2.1948 → 2.1948×250 = $548.70
- C: 2.07×1.25 = 2.5875 → 2.5875×250 = $646.88
- D: 2.25×1.15 = 2.5875 → 2.5875×250 = $646.88

B gives the smallest premium, so (a) is true. The other choices are false (A is $9.30 more than B, C and D are about $98.18 more than B).