Asked by Jenny Blount on May 19, 2024
Verified
An insurance company sells a 20-year term life insurance policy with a face value of $200,000 to a 45-year -old woman.Her annual premium is $990.If the woman dies after paying premiums for 6 years,what is the insurance company's gain or loss?
A) Loss of $194,060
B) Gain of $199,010
C) Loss of $200,990
D) Gain of $205,940
Term Life Insurance
A type of insurance that provides protection for the policyholder; term insurance covers the policyholder for a specified period of time, usually 5, 10, or 20 years; after that time, the policy is no longer in effect, unless it is renewed for another term.
Premium
The amount paid for an insurance policy.
Face Value
The nominal or stated value of a security or financial instrument, such as a bond, note, or coin.
- Comprehend the fundamentals of insurance policies, including term life insurance and the financial implications for the insurer and insured.
Verified Answer
FS
Felicia ShandorMay 26, 2024
Final Answer :
A
Explanation :
The insurance company's loss is calculated by subtracting the total premiums paid from the face value of the policy. The woman pays $990 annually for 6 years, totaling $5,940 ($990 * 6). The face value of the policy is $200,000. Therefore, the loss is $200,000 - $5,940 = $194,060.
Learning Objectives
- Comprehend the fundamentals of insurance policies, including term life insurance and the financial implications for the insurer and insured.