Quetion 1

Mpho is considering the purchase of a P45 000 whole life policy. The coverage will have an annual premium of P500.00. The coverage is participating, and based on the insurers history with similar policies, it is estimated the company will pay a total of P900 in dividends over the first fifteen (15) years. If these dividends are invested at 8% interest, they would accumulate to P1 500 after fifteen (15) years. The cash value after 15 years will be P4 500.00. For calculations involving the time value of money, 6% is the appropriate annual interest rate.

1. Determine the traditional net cost per thousand per year [9 marks]
2. Determine the net payment cost per thousand per year [6 marks]