# Calculate the annual net cost per \$1000 of life insurance at the end of 20 years using the traditional net cost method.

The traditional net cost method calculates the annual cost of \$1000 life insurance. We subtract the cash value and the cumulative value of dividends at 5% over 20 years. This is then subtracted from total premiums for the past 20 years.

You can calculate the sum of premiums over 20 years by multiplying each year’s premium by 20. This is 20. The total premiums paid would therefore be \$230 * 20 years = \$<<230*20=4600>>4600.

Calculating the cumulative value of dividends at 5% over 20 years is as simple as multiplying total dividends received each year by the factor. You can calculate the factor using this formula:

F = (1 + 1 r)n

F represents the factor. r indicates the annual interest rate and n the number of years. When we plug in the values, it gives us:

F = (1+0.05)20 = 1.3637060565

The accumulated value of the dividends at 5% for 20 years is therefore \$1613 * 1.637060565 = \$2660.

After subtracting the total premiums and cash value, the net annual cost for \$1000 in life insurance is calculated. This can then be multiplied by the policy’s face value (10,000), and adding 1000.

((\$4600 – \$3620 – \$2660) / \$10,000) * 1000 = \$80/year/1000

We need to divide \$1000 in life insurance cash value by accumulated premiums of 5% over 20 years. Then, multiply this result by the policy’s face value (\$10,000). Finally, calculate the annual surrender costs index per \$1000.

((\$7985 – \$3620) / \$10,000) * 1000 = \$439/year/1000

To calculate the annual net cost index for life insurance per \$1000 at the end 20 year, subtract the accumulated dividends at 5.5% over 20 years and the accumulated premiums at 5% over 20 years. Divide the result by policy face (\$10,000), and then multiply it by 1000.

((\$7985 – \$2352) / \$10,000) * 1000 = \$566/year/1000

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