This table of nonforfeiture options was provided with the issue of a $50,000 death benefit life insurance policy.
Calculate the nonforfeiture value of the policy if it is surrendered:
At the end of year 5 for cash value.
At the end of year 2 for cash value.
At the end of year 7 for RPU.
At age 65 for RPU.
At the end of year 7 for extended term.
At the end of year 5 for extended term.
The Correct Answer and Explanation is :
I can help you calculate the nonforfeiture values based on the table and the policy details you provided. First, let’s break down each request:
- End of Year 5 for Cash Value
- End of Year 2 for Cash Value
- End of Year 7 for Reduced Paid-Up (RPU)
- At Age 65 for RPU
- End of Year 7 for Extended Term
- End of Year 5 for Extended Term
Calculations
1. End of Year 5 for Cash Value
According to the table, the cash value at the end of year 5 is $1,250 for every $1,000 of insurance. For a $50,000 policy:
[ \text{Cash Value at Year 5} = \left( \frac{50,000}{1,000} \right) \times 1,250 = 62,500 ]
2. End of Year 2 for Cash Value
The cash value at the end of year 2 is $200 for every $1,000 of insurance. For a $50,000 policy:
[ \text{Cash Value at Year 2} = \left( \frac{50,000}{1,000} \right) \times 200 = 10,000 ]
3. End of Year 7 for RPU
The RPU insurance at the end of year 7 is $1,430 for every $1,000 of original insurance. For a $50,000 policy:
[ \text{RPU at Year 7} = \left( \frac{50,000}{1,000} \right) \times 1,430 = 71,500 ]
4. At Age 65 for RPU
For this calculation, additional details about the current age of the policyholder are needed to determine the year number, which isn’t provided here.
5. End of Year 7 for Extended Term
The table shows the extended term at the end of year 7 is 10.35 years for each $1,000 of insurance. The total number of years of coverage for a $50,000 policy:
[ \text{Extended Term at Year 7} = 10.35 \text{ years} ]
(Note: The term doesn’t change with the amount of the policy.)
6. End of Year 5 for Extended Term
The extended term at the end of year 5 is 11.75 years for each $1,000 of insurance.
[ \text{Extended Term at Year 5} = 11.75 \text{ years} ]
Explanation
Nonforfeiture values are benefits that a life insurance policyholder receives if they decide to surrender the policy before it matures or if it lapses due to non-payment of premiums. These benefits are guaranteed under the terms of the life insurance policy.
There are generally three types of nonforfeiture options available:
- Cash Surrender Value – This is the cash amount available to the policyholder if they surrender the policy. It builds up gradually and is a portion of the premiums paid.
- Reduced Paid-Up Insurance – This option allows the policyholder to apply the cash surrender value of the policy towards purchasing a smaller, fully paid-up policy with no further premiums required.
- Extended Term Insurance – This option allows the policyholder to use the cash surrender value to buy term insurance for the original death benefit amount for as long as the cash surrender value can provide coverage.
Each option serves different needs based on the policyholder’s financial goals and circumstances at the time of surrender or lapse.
If you need a visual representation or further details on these calculations or concepts, feel free to ask!