Describe the Investments in Life Insurance Policies.
Pfin (with Mindtap, 1 Term Printed Access Card) (mindtap Course List)
7th Edition
ISBN:9780357033609
Author:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Publisher:Randall Billingsley, Lawrence J. Gitman, Michael D. Joehnk
Chapter8: Insuring Your Life
Section: Chapter Questions
Problem 6LO
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Describe the Investments in Life Insurance Policies.
Expert Solution
Step 1
Life Insurance policies are to provide financial support to the beneficiaries and dependents after the insured person dies. For example:
- Parents of minor
- Parents of the adults who require special care
- Pensioner who are married
- Parents of old age who wants to keep money for their children.
- Parents who are under student debt or loan.
Components of policy are as follows:
- Death benefit: It is basically the face value of the sum of money which is guaranteed by an insurance company to the insured person’s beneficiary. For example, children can be the beneficiary of their parents.
- Premium: The money paid by the policyholder to the insurer is called as premium. The premium paid is decided by two factors a) what is the life expectancy of the insured, b) what death benefit insurer will pay to the insured.
- Cash value: It is a benefit or living benefit that stays with the policyholder during his life. Some of the policies have schemes and restrictions on how the money can be withdrawn. This value can be used by the policyholder during his life time.
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