Anesu is age 45 when she decides to buy a fully discrete 20 year endowment policy of $10,000. Her contract is such that she pays level net benefit premiums every year at the beginning of the year. She pays premiums for the first 15 years as scheduled, but right after she pays her premium at age 60,she is laid off from her job and is unable to continue paying premiums. Anesu’s mortality follows the Illustrative Life Table and interest is 6%. Anesu is entitled to either receive the cash value of her account in cash, or a modified policy. The cash value at time 15 is 85% of the net benefit premium reserve at time 15 (age 60).
a. One of her options is to keep her $10,000 death benefit but reduce the pure endowment benefit. Calculate the reduced pure endowment benefit.
b. Anita inquires whether she could instead, do the opposite: keep the pure endowment benefit at $10,000 and lower her term insurance benefit. Is this possible?
c. Another option would be to change the policy to a whole life insurance policy. What would her death benefit be in this case?