Question

You have the opportunity to purchase a $150,000 Term life insurance policy for $145 per year for the next four years. Your bank has offered you credit life insurance in conjuction with a $12,000 four-year (48-month) loan you are applying for. The credit life insurance premium would be a one-time-up-front fee of $325. What is the annual cost per $1,000 of insurance for the term life insurance and the credit life insurance?

Answer 1

Solution:

Term life policy:

Annual premium for $150,000

term life policy for $145 per year

Premium per thousand for term life insurance = $\frac{145}{150000}\times100=\ 0.97$

Credit life insurance:

Sum assured = $12,000

Premium for 4 years (i.e 48 months) = 3.25

Premium per thousand for credit life insurance = $\frac{325}{\frac{4}{12000}}\times1000 = \ 6.77$

Therefore, the term life insurance is $0.97 and credit life insurance is $6.77.