# Traditional Net Cost Method of Accounting

1142 Words5 Pages
Mini Project: You are an independent owner of a six-story hotel in the business district in a major city (population at least 100,000) near where you live. Introduction By comparing traditional net costs of several indexes, the policyholder can get a truer picture of the relative costs of the policies than he can simply by comparing the premium amounts on the policies. This allows policyholders to choose the policy that gives them the most value for their money. Another thing that policy holders have to take into consideration is the possibility of whether or not their life insurance policy will be taxed. This essay discusses both options and shows us how to calculate the indexes of an untaxable life policy and how to calculate a taxed policy. The traditional net cost method of accounting One of the most common methods used by many life insurance policies is the traditional net cost method of accounting which uses a series of calculations to determine the actual cost of a life insurance policy over the course of a policy-holder's lifetime. To show how this is done we use the following scenario Nicole, age 25, is considering the purchase of a \$ 20,000 participating ordinary life insurance policy. The annual premium is \$ 248.60. Projected dividends over the first 20 years are \$ 814. The cash value at the end of 20 years is \$ 4314. If the premiums are invested at 5 percent interest, they will accumulate to \$ 8631 at the end of 20 years. If the dividends are invested