Future Business Leaders of America (FBLA) Business Calculations Practice Test

What is the net cost of a $120,000 life insurance policy with a premium of $18.80 per $1000 for the year, after accounting for a dividend of $11.90?

1. $2,256.00

2. $213.70

3. $2,244.10

4. $828.00

The correct answer is: $2,244.10

To determine the net cost of the life insurance policy, we first need to calculate the total premium for the policy and then subtract any dividends received. 1. **Calculate the premium for the policy:** The premium is charged at a rate of $18.80 per $1,000 of coverage. For a $120,000 policy, the calculation involves dividing the total coverage by $1,000 and then multiplying by the premium rate: \[ \text{Premium} = \left(\frac{120,000}{1,000}\right) \times 18.80 = 120 \times 18.80 = 2,256.00 \] 2. **Subtract the dividend:** The net cost is then calculated by taking the total premium and subtracting the dividend of $11.90: \[ \text{Net Cost} = \text{Total Premium} - \text{Dividend} = 2,256.00 - 11.90 = 2,244.10 \] The final net cost of the insurance policy is therefore $2,244.10. This reflects the total premium due after accounting for any financial return from the dividends,