Question

Nicole is the beneficiary of her father's life insurance policy. Four years ago her father borrowed $117,960 from the policy's cash value, but he never paid it back. Her father passed away two months ago and Nicole is now preparing the paperwork to file the claim for the death benefit. While reading the paperwork she finds that her father's age is listed as 1969 when in reality he was born in 1965. After providing this information to the insurance company they used the following information to calculate the death benefit.

Interest rate: 4.8% compounded annually
Nicole's father purchased the policy at age 39. At time of issue, the annual premium for a male aged 39 was $756 and the annual premium for a male aged 35 was $701.
What is the total death benefit that Nicole will receive from her father's $800,000 life insurance policy?

Answer 1

To calculate the total death benefit, we consider the borrowed amount, interest rate, and policy's cash value. This equation gives the difference.

Step-by-step explanation:

To calculate the death benefit that Nicole will receive from her father's $800,000 life insurance policy, we need to take into account the borrowed amount and the interest rate. Four years ago, Nicole's father borrowed $117,960 from the policy's cash value. The interest rate is 4.8% compounded annually. We can calculate the total death benefit as follows:

1. Calculate the compound interest on the borrowed amount over four years: $117,960 * (1 + 0.048)^4 = $136,410.55.
2. Subtract the compound interest from the cash value to obtain the adjusted cash value: $117,960 - $136,410.55 = -$18,450.55.
3. Add the adjusted cash value to the policy's death benefit: $800,000 + (-$18,450.55) = $781,549.45.

Therefore, Nicole will receive a total death benefit of $781,549.45 from her father's life insurance policy.