Universal Life 1. [10 marks] A Universal Life policy is sold to a 35-year old woman. The initial premium is $3500 and the face amount is $200,000. The policy provides a death benefit of the face amount plus the account value i.e. an increasing death benefit policy. The cost of insurance rates is equivalent to the Stats Canada 2009-2011 - Canada female rates and the effective rate of interest used for discounting COI amounts is 6%. The expense charges are 5% of the premium plus $65. Surrender charges decrease over time and never exceed the account value. The surrender charge schedule is as follows: Policy year 1 2 3-5 6-10 11-15 16+ Surrender $5000 Charge $4500 $4000 $2500 $1000 0 Assume the policy remains inforce for 15 years, the credited interest rate is 6%, all cash flows occur at policy anniversaries. Project the account value and the cash value at each year end for the 15-year projected term, given that the policyholder pays a premium of $3500 for 5 years then stops paying premiums.