3. Understanding term life insurance Caroline is a 60-year-old female who has recently become the legal guardian and sole caretaker of her three-year old grandson. Ideally, she would like to purchase permanent insurance coverage, but her primary concern is making sure her grandson will be taken care of financially if she dies before he begins college. Given her current financial situation, she is interested in a term life insurance policy that will last 15 years. Caroline goes to an insurance broker to purchase a policy and is shown the following two rate tables to help her choose between annual renewable and level premium term life insurance. Yearly Rates on Term Life Insurance Policies Annual Renewable Term Life Rates Policy Year Age 25 Age 40 $119 $1.39 $147 $219 5176 $507 259 $1,054 Total Cost 5 Years: $625 $897 Total Cost 15 Years: $2,135 $6,205 Total Cost 20 Years: $3,777 $8,287 Age 60 $252 $562 $1,313 $2,989 $2,100 $11,987 $22,346 15 Year $84 Level Premium Term Life Rates 5 Year $102 $101 $119 $136 $245 Age 25 35 40 50 60 $84 20 Year $95 $95 $113 $195 $394 $102 $167 $295 Given her age and desired policy term, she can purchase an annual renewable term life policy and pay in the first year and a total of over the course of the policy. Alternatively, she can purchase a level premium term life policy and pay a premium of per year for a total of over the course of the policy. This example is representative of why, in general, people today purchase term life insurance