Question B.

Four women have each taken out $2 million Life Insurance policies on themselves to protect their children and husbands. None of their husbands are competent money managers. The first woman has one child in elementary school, the second has one child in secondary school, the third has one child in University and the fourth woman has an adult who is an investment manager. Assume you are to advise the women how to arrange the settlement options under their life insurance policies. What settlement options would you recommend for each woman and why?

A. Virtually all life insurance contracts contain a series of options with regard to the disposition of life insurance proceeds. These so-called settlement options fall into three categories: Retention of the proceeds at interest Systematic liquidation of the proceeds without reference to a life contingency Systematic liquidation of the proceeds with reference to a life contingency

Retention of proceeds The basic concept of this option is that the beneficiary is to receive the interest earnings, the principal being held until some future date or the occurrence of some future event. I would recommend this option to the woman with the child in elementary school. This is because as the child is still in school she can use the interest to help her support the child educational needs whilst retaining her principle amount for possible cash surrender in order to pay for her childs university education later on. Systematic liquidation of the proceeds without reference to a life contingency This is basically an installment option where periodic payments are made over some period or until the entire principal sum is exhausted. I would recommend this option to the second and third women based on the fact that they still have children in school and there would be need of a dependency income so that the children can complete their education and assist them with normal expenses. Systematic liquidation of the proceeds with reference to a life contingency This basically involves the scientific liquidation of a principal sum with reference to life contingencies in forms of life annuities, referred to as life income options. Most companies as a matter of practice make available a straight life income, a cash-refund life income an installment refund life income, a life income with installments guaranteed and a joint and last survivor life income option. I would recommend this option to the fourth woman as she has a child who is an investment manager. He can use his training to maximize the funds being received using investments that would bring them the greatest returns.

LIFE AND HEALTH INSURANCE AND PENSIONS PROJECT MGMT 2061

Prepared By: Kean C. Gandalal ID# : 811100989