Fred Asked Two Life Insurance Companies to Give Quotes on a 20-Year

question 104

Short Answer

Fred asked two life insurance companies to give quotes on a 20-year deferred annuity (after a 5-year deferral period) that can be purchased for $100,000. Northwest Mutual quoted payments of $875 payable at the end of each month. Liberty Standard stated that all their annuity options provide a rate of return equal to 5.5% compounded annually. Which should Fred choose?

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Definitions:

Interchangeable

Capable of being substituted or replaced by another similar item, implying a degree of similarity and mutual substitutibility.

Idiosyncratic Deals

Customized work arrangements negotiated between an employee and employer to cater to specific individual needs or skills.

Disrupting

The act of causing a disturbance or interruption in a process, event, or situation.

Sense of Fairness

An individual's perception of the equity or justice of a situation, affecting their satisfaction with outcomes.