Question

Suppose Cho died exactly 20 years + 0 months + 3 days after he was issued a whole life insurance policy with sum insured $50,000. Let Z be the present value of the insurance benefit and assume that i= 0.06.

(a) Suppose the benefit is paid at the end of year of death. Find the value that Z takes on.

(b)Now, suppose the benefit is paid at the end of quarter of death. Find the value that Z takes on.

Answer 1

(a) If benefit is paid at the end of year of death, it will be paid at end of 21st year. So Z is present value of $50,000 receivable at end of 21 years.

Z = PVIF (6%,21) * 50000 = 0.294155 * 50000 = $14,708

(b) If benefit is paid at the end of quarter of death, it will be paid at end of 1st quarter of 21st year. So Z is present value of $50,000 receivable at end of 81 quarters. Quarterly interest = 6%/4 = 1.5%

Z = PVIF (1.5%,81) * 50000 = 0.2994 * 50000 = $14,970