Question

Tim Tradesman pays $2,000 annually for $150,000 worth of life insurance. Answer the following questions. a. At the end of 10 years, how much will Tim have paid in premiums? b. At the end of 10 years, what will the cash value of his policy be? c. What will the ratio of cash value to premiums paid be (as a percent)?

Answer 1

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Explanation for question A:

We are trying to found the amount of money he payed after 10 years.

He pays an annual (yearly) of $2,000, so we would just multiply 2,000 by 10, since we are trying to find the amount he point in 10 years, in which he pays $2,000 a year.

$2000*10=20000$

Answer for Question A: Tim Tradesman paid $20,000 in premiums at the end of 10 years.

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Explanation for question B:

In question B, we are trying to find the cash value of the policy at the end of 10 years.

To find the cash value at the end of 10 years, we would get the units of life insurance and multiply it by the cash value per unit

There would be 150 units of life insurance.

So we multiply:

$150*89=13350$

Answer for Question B: The cash value of his policy will be $13,350 at the end of 10 years.

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Explanation for question C:

In question C, we are trying to find the ratio of cash value to premiums paid.

Our cash value is 13,350 and we paid 20,000.

When you subtract 20,000 and 13,350, you would get 6,650.

$20000-13350=6650$

Then when you add 20,000 and 13,350, you would get 33,350.

$20000+13350=33350$

When you subtract 6,650 from 33,350, you would get 26,700

$33350-6650=26700$

26,700 is 66.75% of 33,350.

Answer for Question c: The ratio as a percent for the cash value to premiums paid is 66.75%

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