I really don't get this... I don't see a yearly payment option in table to compare to the yearly in the problem?
Mike Reno, age 44, saw an Insurance Solutions Direct advertisement stating that its $500,000 term policy costs $395 per year. Compare this to Table 20.1 in the text.
How much would he save by going with Insurance Solutions Direct?
Table 20.1:
Age:44
Five-Year Term: 4.50
Age:44
Straight Life: 17.86
Age:44
Twenty-Payment Life: 22.15
Age:44
Twenty-Year Endowment: 40.09
To compare the cost of Insurance Solutions Direct's $500,000 term policy with the options in Table 20.1, you need to consider the premiums for the same coverage period. In this case, the term policy offered by Insurance Solutions Direct costs $395 per year.
Since the options in Table 20.1 have different coverage periods, you will need to find an option that best matches the coverage period of Insurance Solutions Direct's policy. In this case, the closest option would be the "Twenty-Year Endowment" with a premium of $40.09.
To calculate how much Mike would save by going with Insurance Solutions Direct, you can subtract the premium of the Twenty-Year Endowment option from the premium of Insurance Solutions Direct's policy.
Savings = Premium of Twenty-Year Endowment - Premium of Insurance Solutions Direct's policy
= $40.09 - $395
= -$354.91
Therefore, Mike would actually pay more by going with Insurance Solutions Direct compared to the Twenty-Year Endowment option in Table 20.1.