Question

Vivian has purchased a UL policy that has a $5,000 annual cost of insurance, annual administrative expenses of $200 and there is a 2% provincial premium tax in her province. She has decided to deposit $20,000 as a total annual premium that will earn her a return of 4% on the investment account portion of the policy. Given this scenario how much will her investment account be worth at the end of the year?

Answer 1

Vivian's investment account under her UL insurance policy will be worth $14,976 after one year, considering a $5,000 annual cost of insurance, $200 annual administrative expenses, a 2% provincial premium tax, and a 4% return on the investment account portion of the policy after depositing a $20,000 total annual premium.

Step-by-step explanation:

The question revolves around calculating the value of an investment account at the end of one year for a Universal Life (UL) insurance policy that Vivian has purchased. To determine this, we must take into account the annual cost of insurance, annual administrative expenses, provincial premium tax, the total annual premium paid, and the return rate on the investment portion.

The calculation will be as follows:

• Total annual premium: $20,000
• Annual cost of insurance: $5,000
• Annual administrative expenses: $200
• Provincial premium tax: 2%

To calculate the investment after costs and premiums, we follow these steps:

1. Calculate the total expenses and tax on the premium: ($5,000 + $200) + 2% of $20,000 = $5,200 + $400 = $5,600.
2. Subtract the total expenses and tax from the total annual premium: $20,000 - $5,600 = $14,400.
3. Calculate the investment account growth: $14,400 x (1 + 4%) = $14,400 x 1.04 = $14,976.

Therefore, after one year, Vivian's investment account would be worth $14,976.