Angelo, age 40, is comparing the premium for a $125,000 whole life insurance policy he may take now and the premium for the same policy taken out at age 45. The Annual Life Insurance Premium (per $1000 of face value) for a 40-year-old male is 22.60 and for a 45-year-old male is 27.75. What would be the difference in total premium costs over 20 years for this policy at the two age levels?
a.
$69,375
b.
$11,725
c.
$12,875
d.
$644
To calculate the difference in total premium costs over 20 years for this policy at the two age levels, we need to calculate the total premium for each age level and then subtract the amount for the 45-year-old male from the amount for the 40-year-old male.
The total premium for a 40-year-old male with a $125,000 policy can be calculated by multiplying the face value by the premium per $1000 of face value: 125,000 * 22.60 / 1000 = $2,825.
Similarly, the total premium for a 45-year-old male with a $125,000 policy can be calculated by multiplying the face value by the premium per $1000 of face value: 125,000 * 27.75 / 1000 = $3,468.75.
The difference in total premium costs over 20 years for this policy at the two age levels can be calculated by subtracting the amount for the 45-year-old male from the amount for the 40-year-old male: 2,825 - 3,468.75 = -$643.75.
The difference in total premium costs over 20 years for this policy at the two age levels is -$643.75, or approximately -$644.
Therefore, the answer is d. -$644.
To find the difference in total premium costs over 20 years for the policy at the two age levels, we need to calculate the total premium costs for each age and subtract them.
For a 40-year-old male, the premium per $1000 of face value is $22.60.
To find the total premium cost at age 40, we need to multiply the premium per $1000 by the face value and divide it by 1000. So the total premium cost at age 40 would be:
Total premium cost at age 40 = ($125,000 / 1000) * $22.60 = $2,825
Likewise, for a 45-year-old male, the premium per $1000 of face value is $27.75.
The total premium cost at age 45 would be:
Total premium cost at age 45 = ($125,000 / 1000) * $27.75 = $3,468.75
The difference in total premium costs over 20 years would be:
Total premium cost at age 45 - Total premium cost at age 40 = $3,468.75 - $2,825 = $643.75
Therefore, the difference in total premium costs over 20 years for this policy at the two age levels is $644.
Hence, the correct option is d. $644.