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Suppose your aunt and uncle are wealthy (assets valued in excess of $1 million) and you were asked one holiday at a family dinner to
Suppose your aunt and uncle are wealthy (assets valued in excess of $1 million) and you were asked one holiday at a family dinner to estimate how much the annual premiums would be on a second-to-die policy with a face value of $1 million.
You had your trusty calculator (or laptop or whatever) and you guessed the following parameters:
- Given the ages of Aunt Jane and Uncle Earl, you guesstimate the expected time until the second dies is 25 years.
- Given that insurance companies tend to buy low-risk assets and have some operating expenses, you guestimate that an insurance company would earn a net rate of return of about 5.5 percent on invested premiums.
What is your estimate of the annual premium for a $1 million dollar second-to-die policy on good-old Aunt Jane and Uncle Earl? Assume the first payment is due upon signing of the contract.
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