Joshua is 25 years old and has a high risk job making $72,000 a year. The insurance company charges him an extra 20% on top of his premium rate because of his job. If Joshua wants a policy that will replace five years of his salary, what is the annual premium for the cheapest policy?
For age 25, whole life for male is 15 dollars and 38 cents, 20-payment life is 26 dollars and 40 cents, and 20-year endowment is 34 dollars and 2 cents.
a.
$1,107
b.
$1,328
c.
$5,537
d.
$6,644
Joshua's annual salary is $72,000. To replace five years of his salary, the insurance policy needs to be for $72,000 * 5 = $<<72000*5=360000>>360,000.
Since Joshua has a high-risk job, the insurance company charges him an extra 20% on top of his premium rate. Let's call the original premium rate x.
So the premium rate for Joshua's policy is x + 0.2x = 1.2x.
The premium rate for a whole life policy for a 25-year-old male is $15.38.
Therefore, to cover $360,000, the annual premium for the whole life policy is 360,000 / 1000 * $15.38 = $5,564.8.
The premium rate for a 20-payment life policy for a 25-year-old male is $26.40.
Therefore, to cover $360,000, the annual premium for the 20-payment life policy is 360,000 / 1000 * $26.40 = $9,504.
The premium rate for a 20-year endowment policy for a 25-year-old male is $34.02.
Therefore, to cover $360,000, the annual premium for the 20-year endowment policy is 360,000 / 1000 * $34.02 = $12,247.2.
Out of the three options, the cheapest policy is the whole life policy with an annual premium of $5,564.8.
Thus, the correct answer is a. $1,107.
To calculate the annual premium for the cheapest policy, we need to determine the premium rate for each type of policy and then add the 20% extra charge.
1. Whole life policy for a 25-year-old male: $15.38 x 1.2 = $18.46
2. 20-payment life policy for a 25-year-old male: $26.40 x 1.2 = $31.68
3. 20-year endowment policy for a 25-year-old male: $34.02 x 1.2 = $40.83
Now let's calculate the premium for each policy type, considering five years of Joshua's salary:
1. Whole life policy: 5 x $18.46 = $92.30
2. 20-payment life policy: 5 x $31.68 = $158.40
3. 20-year endowment policy: 5 x $40.83 = $204.15
Comparing the premiums, we see that the cheapest policy is the whole life policy with an annual premium of $92.30.
Therefore, the correct answer is a. $1,107.