Question

Let's assume you are the beneficiary of your great Aunt's life insurance policy. Sadly she passed away yesterday. You elect to receive annual payments from this policy for the next 20 years. The settlement amount is $500,000 and the interest accruing on the policy is an annual 8%. What will be your annual life insurance annuity payments

Answer 1

Answer: The life insurance annuity payment is $50,926.10

Explanation:

GIVEN THE FOLLOWING ;

PRESENT VALUE(PV) = $500,000

INTEREST RATE (r) = 8% = 0.08

PERIOD (n) = 20 years

Recall, formula for ordinary annuity:

Annuity = (Rate × PV) ÷ ( 1 - (1 + r)^-n)

Annuity = (0.08 × $500,000) ÷ (1 - (1 + 0.08)^-n)

Annuity = ($40,000) ÷ (1 - (1.08)^-20)

Annuity = $40,000 ÷ 0.7854517925

Annuity = $50,926.10

Therefore, the life insurance annuity payment for 20 years at 8% interest rate will be $50,926.10

Answer 2

Answer:

The annual insurance annuity payment will be $50,926.10

Explanation:

To calculate the annual life insurance annuity, we use the following formula below.

Annuity = (Rate × PV) ÷ ( 1 - (1 + r)^-n)

We have the values been given in the question

Current (PV) = $500,000

Interest rate (r) = 8% /100= 0.08

Duration (n) = 20 years

Substituting the values in to the formula, we have;

Annuity payment = (0.08 × $500,000) ÷ (1 - (1 + 0.08)^-n)

Annuity payment = ($40,000) ÷ (1 - (1.08)^-20)

Annuity payment = $40,000 ÷ 0.7854517925

Annuity payment = $50,926.10

We have $50,926.10 as the annual insurance annuity payment