A 65 year frail man intends to use his retirement funds to purchase an annuity from a duration insurance company.?
given the amount of money the man has available to invest, the insurance company is able to extend two alternatives. the first option is to receive $2785 each month for as long as he lives; the second prospect is to receieve $3500 each month, but for only 20 years (payments will be made to his estate if he should die formerly that time) the relevant interest rate is 6 percent per year. how long must the man live so that the first option is a better deal?
can someone please bring up to date me how to answer this question?
Answers:
You have a straightforward offer that yield a not so surprising answer. Since the insurance company is offering $715 less per month for an open done committment, it is certainly going to take copious more "moons" to capture equal value to the $3,500 for 20yr. submission.
OK, how much longer.
The Present Value(PV) of 240 payments of $3,500 with money worth 6% is $488,532.
It would take 420.3 payments/mo of $2,785 near money worth 6% to yield a Present Value of $488,532.
You would have to live 180 months longer beside the second option to get equal convenience. That would put a 65 year old man all the course up to age 100..... wow!
The break even point is at the age of 91.
If your 65 year old man lives to 91, after all payments after that birthday will be above what the other option pays.
So, surrounded by deciding which option is best, you will inevitability to take into consideration his health, kith and kin history, any existing health condition, and lifestyle ( smoking, drinking, etc ).
If he has more than a 50% providence of making it to 91, then one might choose the first payment diary with more confidence. But unexpected events could adversely affect it - a sudden infection, an accident, criminal activity, etc.
Ultimately, you will own to take on a certain level of risk, but at least you will have information to guide your outcome.
Life insurance companies are NOT investment firms -- don't get suckered.
Find yourself a upright investment consultant who does not work on commission. You'll probably have to pay him a couple hundred buck for counsel, but you know it will be more balanced.
Related Questions:
can someone please bring up to date me how to answer this question?
Answers:
You have a straightforward offer that yield a not so surprising answer. Since the insurance company is offering $715 less per month for an open done committment, it is certainly going to take copious more "moons" to capture equal value to the $3,500 for 20yr. submission.
OK, how much longer.
The Present Value(PV) of 240 payments of $3,500 with money worth 6% is $488,532.
It would take 420.3 payments/mo of $2,785 near money worth 6% to yield a Present Value of $488,532.
You would have to live 180 months longer beside the second option to get equal convenience. That would put a 65 year old man all the course up to age 100..... wow!
The break even point is at the age of 91.
If your 65 year old man lives to 91, after all payments after that birthday will be above what the other option pays.
So, surrounded by deciding which option is best, you will inevitability to take into consideration his health, kith and kin history, any existing health condition, and lifestyle ( smoking, drinking, etc ).
If he has more than a 50% providence of making it to 91, then one might choose the first payment diary with more confidence. But unexpected events could adversely affect it - a sudden infection, an accident, criminal activity, etc.
Ultimately, you will own to take on a certain level of risk, but at least you will have information to guide your outcome.
Life insurance companies are NOT investment firms -- don't get suckered.
Find yourself a upright investment consultant who does not work on commission. You'll probably have to pay him a couple hundred buck for counsel, but you know it will be more balanced.
Related Questions:
- Can I properly provide a generic WILL form to my go and condition insurance customers?
- My sister give me some time insurance policies that my parents (both deceased) have on me. My mother is...?
- Life Insurance Exam, What is the measurment used for THC?
- What is the best means of access to design a sampling plan within marketing?
- What are some clothed Life Insurance companies for the elderly?