1 Life Insurance (50') The following table present the cash flow arrangement of a life insurance (including critical illness) policy. Use the information in the table to answer the following questions. Assume all premiums are paid at the beginning of each year, and all payments (death benefit and surrender value) are paid at the end of each year. PRUmyhealth lifelong crisis protector IMPORTANT: THIS IS A SUMMARY ILLUSTRATION OF THE BENEFITS OF YOUR POLICY AND IN NO WAY AFFECTS THE TERMS AND CONDITIONS STATED IN THE POLICY DOCUMENT. Name : Mr. Chan Tai Man : 45 Sex: Male (Non-smcker) Initial Sum Assured : US$ 128,000 Benefit Term Age Next Birthday (ANB) Initial Annual Premium Premium Term US$ 4,879.36 20 years : Whole Life Basic Plan - Illustration Summary (Currency: USS) Surrender Benefit Major Disease Benefit / Death Benefit Guaranteed Sum Assured Cash Value of Face Value of Non-Guaranteed Free 10-year Non-Guaranteed Guaranteed Cash Value PRUmyhealth lifelong crisis protector (C) Terminal Bonus Terminal Bonus End of Policy Year Total (A)+(B) crisis cover (D) Total (C)+(D)+(E) Total Premiums (A) (8) (E) ol 0 0 128,000 0 172,800 4,879 2 0 0 0 128,000 0 172,800 9,759 3 366 0 366 128,000 D 172,800 14,638 4 976 0 978 128,000 D 172.800 19.517 5 1,830 383 2,213 128,000 1,276 174,076 24,397 6 2,928 743 3,671 128.000 1,508 174,308 29,276 7 4,269 1,262 5,531 128,000 1,748 174,548 34,156 8 5.855 2,152 8,007 128,000 2,152 174,962 39,035 9 7,685 3,395 11,080 128,000 3,395 176,195 43,914 10 9,759 5,006 14,765 128,000 5,006 177,806 48,794 11 12,076 6,320 18,396 128.000 31,441 159,441 53,673 12 14,638 7,951 22,589 128,000 34,874 162,874 58,552 13 19,030 10,059 29,089 128,000 38,392 166,392 63,432 14 23,909 12.540 36,549 128.000 41,994 169,004 68,311 15 29,276 15,945 45,221 128,000 45,687 173,687 73,190 23 63,432 50,222 113,664 128,000 69.271 197,271 97,587 25 87,8825 72,855 160,483 128,000 97,917 225,917 97,587 30 92,708 103,929 196,637 128,000 133,413 261,413 97,587 ANB 65 63,432 50,222 113,654 128,000 69,271 197,271 97,587 BAND 70 87,828 72,655 160,463 128,000 97,317 225,917 97,587 @ANB 75 92,708 103,929 196,637 128,000 133,413 261,413 97,587 AND 80 97,587 146,377 243,964 128,000 177,212 305,212 97,587 ANB 85 128,000 226,400 354,400 128.000 226,400 354,400 97,587 AND 90 128,000 291,104 419,104 128,000 291,104 419,104 97,587 @ANB 95 128,000 406,312 534,312 128,000 406,312 534,312 97,587 128,000 548,086 676,089 128,000 548,085 676,086 97,547 CANB 100 Notes: (1) The above is only an illustration summary of the major benefits of your policy. You are advised to contact your consultant or the Company for more information on this plan. This illustration in no way affects the terms and conditions stated in the Policy Document. (2) The above illustration relates only to your Basic Plan excluding any riders or additional benefits (if applicable). (3) The above values are for illustrative purposes only and assume that (1) all premiums are paid in full when due: (i) no Advanced Claim has been paid; and (i) the Sum Assured of your Basic Plan remains unchanged throughout the Benefit Term. (4) Terminal Bonus is a one-off bonus payable upon payment of Major Disease Benefit (except for Advanced Claim), Death Benefit, or upon termination of the policy, if any of them occurs from the 5th policy anniversary onwards. The face value of Terminal Bonus will be paid when the Company is paying the Major Disease Benefit or Death Benefit, but only the cash value of Terminal Bonus will be paid when the policy is surrendered in whole or in part. These values are determined and calculated based on the Company's experiences and the current projections of surrender values and bonus scales in relation to a number of factors including, but not limited to claims, persistency and investment assumptions. Hence, the values are not guaranteed and are subject to review and adjustment at the absolute discretion of the Company. You should note that the actual values payable under the policy may differ significantly from the above illustrated values. (5) The Company reserves the right to review the premium rates on each policy anniversary and adjust the premium rates accordingly across a particular risk class. 44,800 44,500 44,800 44,800 44,800 44,800 44,800 44,800 44,800 44,800 0 0 0 0 1. Basics. (15) (a) What is the annual premium payment required by this policy? (3) (b) If the policy holder wants to surrender the policy and guarantee the total premium he pays in the last column (assuming survival and not getting major disease), how many years must he wait? If the non-guaranteed terminal bonus is included in the surrender benefit, how many years must he wait to recover the total premium payment? (6) (c) Assume the premium paid by the policyholder can earn an 1% interest rate from an outside asset, and assume the insured survives without getting major diseases. Add a column that calculate the future value of total premium payment at the end of each policy year. [Hint: You may use the NPV function and FV function in Excel. See here for the use of NPV. ](6') 1 Life Insurance (50') The following table present the cash flow arrangement of a life insurance (including critical illness) policy. Use the information in the table to answer the following questions. Assume all premiums are paid at the beginning of each year, and all payments (death benefit and surrender value) are paid at the end of each year. PRUmyhealth lifelong crisis protector IMPORTANT: THIS IS A SUMMARY ILLUSTRATION OF THE BENEFITS OF YOUR POLICY AND IN NO WAY AFFECTS THE TERMS AND CONDITIONS STATED IN THE POLICY DOCUMENT. Name : Mr. Chan Tai Man : 45 Sex: Male (Non-smcker) Initial Sum Assured : US$ 128,000 Benefit Term Age Next Birthday (ANB) Initial Annual Premium Premium Term US$ 4,879.36 20 years : Whole Life Basic Plan - Illustration Summary (Currency: USS) Surrender Benefit Major Disease Benefit / Death Benefit Guaranteed Sum Assured Cash Value of Face Value of Non-Guaranteed Free 10-year Non-Guaranteed Guaranteed Cash Value PRUmyhealth lifelong crisis protector (C) Terminal Bonus Terminal Bonus End of Policy Year Total (A)+(B) crisis cover (D) Total (C)+(D)+(E) Total Premiums (A) (8) (E) ol 0 0 128,000 0 172,800 4,879 2 0 0 0 128,000 0 172,800 9,759 3 366 0 366 128,000 D 172,800 14,638 4 976 0 978 128,000 D 172.800 19.517 5 1,830 383 2,213 128,000 1,276 174,076 24,397 6 2,928 743 3,671 128.000 1,508 174,308 29,276 7 4,269 1,262 5,531 128,000 1,748 174,548 34,156 8 5.855 2,152 8,007 128,000 2,152 174,962 39,035 9 7,685 3,395 11,080 128,000 3,395 176,195 43,914 10 9,759 5,006 14,765 128,000 5,006 177,806 48,794 11 12,076 6,320 18,396 128.000 31,441 159,441 53,673 12 14,638 7,951 22,589 128,000 34,874 162,874 58,552 13 19,030 10,059 29,089 128,000 38,392 166,392 63,432 14 23,909 12.540 36,549 128.000 41,994 169,004 68,311 15 29,276 15,945 45,221 128,000 45,687 173,687 73,190 23 63,432 50,222 113,664 128,000 69.271 197,271 97,587 25 87,8825 72,855 160,483 128,000 97,917 225,917 97,587 30 92,708 103,929 196,637 128,000 133,413 261,413 97,587 ANB 65 63,432 50,222 113,654 128,000 69,271 197,271 97,587 BAND 70 87,828 72,655 160,463 128,000 97,317 225,917 97,587 @ANB 75 92,708 103,929 196,637 128,000 133,413 261,413 97,587 AND 80 97,587 146,377 243,964 128,000 177,212 305,212 97,587 ANB 85 128,000 226,400 354,400 128.000 226,400 354,400 97,587 AND 90 128,000 291,104 419,104 128,000 291,104 419,104 97,587 @ANB 95 128,000 406,312 534,312 128,000 406,312 534,312 97,587 128,000 548,086 676,089 128,000 548,085 676,086 97,547 CANB 100 Notes: (1) The above is only an illustration summary of the major benefits of your policy. You are advised to contact your consultant or the Company for more information on this plan. This illustration in no way affects the terms and conditions stated in the Policy Document. (2) The above illustration relates only to your Basic Plan excluding any riders or additional benefits (if applicable). (3) The above values are for illustrative purposes only and assume that (1) all premiums are paid in full when due: (i) no Advanced Claim has been paid; and (i) the Sum Assured of your Basic Plan remains unchanged throughout the Benefit Term. (4) Terminal Bonus is a one-off bonus payable upon payment of Major Disease Benefit (except for Advanced Claim), Death Benefit, or upon termination of the policy, if any of them occurs from the 5th policy anniversary onwards. The face value of Terminal Bonus will be paid when the Company is paying the Major Disease Benefit or Death Benefit, but only the cash value of Terminal Bonus will be paid when the policy is surrendered in whole or in part. These values are determined and calculated based on the Company's experiences and the current projections of surrender values and bonus scales in relation to a number of factors including, but not limited to claims, persistency and investment assumptions. Hence, the values are not guaranteed and are subject to review and adjustment at the absolute discretion of the Company. You should note that the actual values payable under the policy may differ significantly from the above illustrated values. (5) The Company reserves the right to review the premium rates on each policy anniversary and adjust the premium rates accordingly across a particular risk class. 44,800 44,500 44,800 44,800 44,800 44,800 44,800 44,800 44,800 44,800 0 0 0 0 1. Basics. (15) (a) What is the annual premium payment required by this policy? (3) (b) If the policy holder wants to surrender the policy and guarantee the total premium he pays in the last column (assuming survival and not getting major disease), how many years must he wait? If the non-guaranteed terminal bonus is included in the surrender benefit, how many years must he wait to recover the total premium payment? (6) (c) Assume the premium paid by the policyholder can earn an 1% interest rate from an outside asset, and assume the insured survives without getting major diseases. Add a column that calculate the future value of total premium payment at the end of each policy year. [Hint: You may use the NPV function and FV function in Excel. See here for the use of NPV. ](6')