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1. Lane Golden has just purchased a universal life insurance policy from Midwest Great Life. Initially, Lane pays a first-month premium of $100. Her policy
1. Lane Golden has just purchased a universal life insurance policy from Midwest Great Life. Initially, Lane pays a first-month premium of $100. Her policy has (1) a front-end load of $2.00 per month; (2) a surrender charge equal to 100 percent of the minimum first-year premiums of $1,200 ($100 per month), decreasing 20 percent of the original surrender charge per year until it disappears after five years; (3) a current monthly mortality rate of $0.15 per $1,000 of protection (amount at risk); and (4) a current monthly investment return of 0.667 percent. Her policy is a type B, with a level $100,000 protection element. a. Construct a flow of funds statement, like the one in Figure 19.6, Two Universal Death Benefit Options", for the first month of Lane's policy. Answer: The flow of funds for the first month of Lane's policy; Accumulation Value-End of Previous Period + Flexible Premium Paid for Current Period - Front-End expense charges for Current Period - Morality charges for Current Period - Withdrawal and Policy Loans for Current Period = Accumulation Value subject to Investment Credits at Beginning of Current Period + Investment Return for Current Period = Accumulation Value-End of Current Period - Surrender Expenses for Current Period = Cash Value-End of Current Period Now, assuming that there are no withdrawals or policy loans for the current period and Lane does not surrender the policy after the first month, we get; + L L L (Assuming that Lane does not make any withdrawals or take policy loans) L + || | (Assuming that Lane does not terminate the policy after the first month) ||
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