DeShawn is 38 years old and is married with 3 children, ages 2, 4, and 6. He makes $45,000 a year and is planning to retire when he turns 60. From the following three options, DeShawn decides to buy the $900,000 20 year term policy. Given DeShawn’s scenario, assess whether DeShawn made a wise decision.
Annual life insurance premium (per 1,000 dollars of face value) for age 38. A 20-year term for male is 15 dollars and 38 cents, and for female is 14 dollars and 88 cents. Whole life: for male is 22 dollars and 40 cents, female is 20 dollars and 4 cents. 20-year endowment: male is 30 dollars and 5 cents and female is 29 dollars and 63 cents.
a.
DeShawn would be safer buying whole life policy.
b.
DeShawn would have more money in the long run if he invested in the 20-year endowment.
c.
DeShawn’s current policy will cover his family for an adequate period of time at his current salary.
d.
DeShawn’s current policy has too high of a face value and does not cover his family long enough.
c. DeShawn’s current policy will cover his family for an adequate period of time at his current salary.
To assess whether DeShawn made a wise decision in buying the $900,000 20-year term policy, we need to compare it to the other available options and consider his specific circumstances.
According to the information provided, DeShawn is 38 years old, married with three children ages 2, 4, and 6. He makes $45,000 a year and plans to retire at 60.
a. The cost of a whole life policy for males at age 38 is $22.40 per $1,000 of face value. If DeShawn were to purchase a whole life policy with a face value of $900,000, the premium would be significantly higher compared to the term policy. Additionally, whole life policies usually have cash value accumulation, but they are more expensive in terms of premiums. Given DeShawn's financial situation and goals, it is unclear whether a whole life policy would be a safer option, as it would likely be more costly.
b. The 20-year endowment policy may provide a higher return on investment compared to the term policy. However, it is important to note that endowment policies typically have higher premiums. Given DeShawn's income and financial goals, investing in the 20-year endowment policy might not be the most financially prudent decision.
c. Since DeShawn is making $45,000 a year and plans to retire at 60, a 20-year term policy would cover his family until he is 58 years old. This could be considered an adequate period of time, since his children will be older and potentially financially independent by that age. However, the adequacy of the coverage also depends on other factors such as debts, financial goals, and potential future income.
d. The current policy DeShawn has, with a face value of $900,000 and a term of 20 years, would cover his family until he turns 58 years old, which may be sufficient based on his circumstances. It is important to consider whether this coverage aligns with his financial goals, the potential needs of his family, and any outstanding debts or financial obligations.
Based on the information provided, it can be argued that DeShawn's decision to buy the $900,000 20-year term policy could be a wise one, as it is potentially more affordable and aligns with his retirement plans. However, the specific circumstances and financial goals of DeShawn should be thoroughly evaluated before making a final judgment.