The Mathematics of Money

Accidental death benefits may be sold either as riders to a regular policy, or as a policy

in their own right. This coverage provides a death benefit only if the insured dies in an

accident. Accidental death policies are quite popular, mainly because they can provide

a large death benefit for a very modest premium, and because people tend to overesti-

mate the likelihood that they will die in a plane crash or car wreck of some similar acci-

dent. Accidental death benefit insurance is often offered as part of cafeteria benefit plans

because of this popularity. However, the reason this coverage is so inexpensive is that it is

very unlikely to pay off. Also, it is not clear how the way that someone dies would affect

her family’s financial needs following that death. Accidental death and dismemberment

policies provide a benefit in case of accidental death, and also a benefit in case of loss of

limb in an accident.

Joint life policies pay a death benefit based on the deaths of two or more people.

A first-to-die policy pays its death benefit when the first of a specified group of

insureds dies. A married couple, each looking to provide for the other in the event of

death, may find that a first-to-die policy covering them together is less expensive than

if each person were to buy an individual policy. A first-to-die policy will, however, be

more expensive than one individual policy. Last-to-die policies pay off when the last

of a specified group dies. These policies may be used by a couple concerned about

providing for their dependents if both die (but not concerned about either spouse’s

ability to manage without the other), and also are commonly used to prepare to pay

estate taxes.

Copyright © 2008, The McGraw-Hill Companies, Inc.

A. Term Insurance

For Exercises 1 to 10 calculate the premium for the policy specifi ed, using the Trustworthy Mutual term insurance rate tables

on page 551.

1. $150,000 annually renewable term. 36-year-old standard female nonsmoker. Annual premium.


2. $185,000 20-year level term. 38-year-old female smoker. Quarterly premium.


3. $215,000 annually renewable term. 35-year-old male preferred. Monthly premium.


4. $250,000 annually renewable term. 37-year-old male preferred. Monthly premium.


5. $350,000 20-year level term. 39-year-old female preferred. Semiannual premium.


6. $425,000 annually renewable term. 35-year-old make smoker. Quarterly premium.


7. $325,000 annually renewable term. 38-year-old male standard nonsmoker. Monthly premium.

EXERCISES 13.3

Exercises 13.3 557