Question

II. Betty Gonzalez, age 40, is considering the purchase of a limited-payment participating life insurance policy which would be paid up at age 60. She plans to work until then and does not wish to pay any premiums after she retires, but she definitely wants whole life insurance protection. Betty earns $50,000 per year as a branch manager for a commercial bank. As a single mother she has been unable to accumulate much wealth. At this time, Betty has dependent children ages 10 and 14.

a. Explain to her any alternatives that would meet the criteria she has established.

b. Why do you think her choice is a good (or bad) one? What additional information would you like to have before feeling confident about your answer?

Answer 1

Sol:

Betty Gonzalez aged 40 is planning to retire at the age of 60. Also she wishes to purchase limited payment participating life insurance policy.She is a mother of two dependent children.

Current income - $50000 p.a

a. Alternative for Limited payment participating whole life insurance policy

- Term Life Insurance

The term of the Policy can be fixed by the policy holder, i.e. 5 yrs, 10 yrs, 20 yrs.

It is similar to Whole life policy except it ends after a specified number of years.

It is cheaper and gives more benefits compared to whole life policy at the same rate.

The benefits from the policy will get to the policy holder or beneficiary, earlier of maturity of the policy or the death of the policy holder.

b. Term Life Insurance Policy is much cheaper than Whole life insurance policy . It gives more benefits than whole life insurance policy at the same value.

So Betty Gonzalez is advised to take term life insurance policy because she will get the amount when the policy matures at the age of 60 or at her death the beneficiaries will get the same.