Overview of Life Insurance Policies

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Introduction Many life insurance policies use the traditional net cost method of accounting to predict the total cost of your life insurance policy over the remaining years of your life. To show how this is done we use the following scenario of a participating ordinary life policy in the amount of $10,000 that is sold to an individual, age 35. We show how the traditional net cost approach would calculate his life insurance and we then discuss the various indexes involved. The purpose of this essay is to clarify the calculations of life insurance policies for the user. Scenario: A Participating ordinary life policy in the amount of $10,000 is sold to an individual, age 35. The following cost data are given: Annual premium $230 Total dividends for 20 years $1613 Cash value at end of 20 years $3620 Accumulated value of the annual premiums at 5 percent for 20 years $ 7985 Accumulated value of the dividends at 5 percent for 20 years $ 2352 Amount to which $1 deposited annually at the beginning of each year will accumulate in 2o years at 5 percent $ 34.719 Using the traditional net cost method, the annual net cost per $ 1000 of life insurance at the end of 20 years is the following:. The traditional net cost method uses a series of calculations to determine the actual cost of a life insurance policy over the course of a policy-holder's lifetime. By comparing traditional net costs of several indexes, the policyholder can get a truer picture of the relative costs of the
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