Ch 9 Life Insurance

Question 1

What is life insurance

Answer 1

Contract that provides for the payment of a specified sum on the event of death (human life, lifetimes)

Question 2

What events can relate to life or death

Answer 2

Risk of dying and not leaving enough funds behind to support dependents

Risk of surviving beyond a specified time point and as a result not having funds to meet expenses

Question 3

What are the tow products related to death

Answer 3

Whole life policy
Term assurance policy

Question 4

Explain whole life policy

Answer 4

Pays a benefit sum assured when insured life dies, policy holder pays regular premiums

Could be lump sum but in some cases are an annuity

Question 5

Explain a lapse

Answer 5

This is when policyholders stop paying premiums and no money will be received on the event of death

Question 6

Explain a term assurance policy

Answer 6

Pays benefits sum assured on the death of the insured life provided the death occurs within a specified time period . If they don’t die within the time period they receive nothing

Question 7

What are products related to survival

Answer 7

Pure endowment
Life annuities

Question 8

Explain pure endowment

Answer 8

Pays out a lump sum if the insured life is still alive at the end of the term of the policy

Question 9

Explain life annuities

Answer 9

Provides the insured a regular payment while they are still alive

Question 10

What is a whole life annuity

Answer 10

When the payment is paid for the rest of the persons life

Question 11

What is a temporary annuity

Answer 11

When the payment is agreed based on a specific term

Question 12

What is a deferred annuity

Answer 12

When the payments start on a later date which could be purchased with a lump sum or regular premiums

Question 13

What products are associated with life and death

Answer 13

Endowment

Question 14

What is endowment assurance

Answer 14

Combination of a pure endowment and term assurance where there is a benefit paid whether the policyholder survives or dies within a specified term agreed upon

Question 15

What are distribution channels

Answer 15

A way in which businesses get their products out to the public

Question 16

What are four distribution channels

Answer 16

Intermediaries
Agency force
Own sales force
Direct sales

Question 17

Explain intermediaries

Answer 17

Also known as financial advisors they find the best deal for their clients, they aren’t tied to any agencies and will give their clients the best quotes from companies

Question 18

Explain agency force (tied agents)

Answer 18

Sell products of one insurance company or in some cases handful of insurers . They are paid via commission .

Question 19

Explain own sales force

Answer 19

People employed by the insurance company with the purpose of selling their product . Paid with salary and commissions

Question 20

Explain direct sales

Answer 20

Growing area of distribution driven particularly by technological development where insurers sell directly to the public . Through
Direct mail
Telephone sales
Internet sales

Question 21

What is Group life assurance (GLA)

Answer 21

When employers get life insurance coverage for all their employees.

Question 22

How can GLA be used

Answer 22

By employer to provide benefit to a dependants on the death of and employee

By credit card company to provide benefit equal to balance of dead persons debt

By suppliers with pavement in instalments to cover the risk that recovered goods are less valuable than the outstanding loan balances

Question 23

What type of underwriting is done in life insurance

Answer 23

They check medical history , age , general health. As well as check the financial info about the policyholders

Question 24

What are surrender values

Answer 24

Paid out if the insured life is deciding to surrender the policy forgoing future benefits

Question 25

What are the paid up values

Answer 25

when policyholders stop paying premiums but want to be covered. This will man that a lower sum assured will be agreed upon.

Question 26

Why is pricing life insurance contracts difficult

Answer 26

Actuaries must work out the probability of death in any future year. Taking into account that time until death affects sum assured and present value of premiums.

Question 27

why is reserving important in life insurance

Answer 27

policies are long term so calculations should be done properly in order to security of the insurer

Question 28

Regarding claims, what are the different mechanism increasing the sum assured over time

Answer 28

Standard contacts With profits contacts index linked contracts Unit linked contracts

Question 29

Explain standard contracts

Answer 29

Benefits agreed upon at the outset and do not change

Question 30

Explain With profits contracts

Answer 30

When the policyholder is entitled to receive a part of the surplus of company profits

Question 31

Explain index linked contracts

Answer 31

Index linked contracts enable consumers to obtain a benefit that is guaranteed to increase a long with an investment or economic index

Question 32

Explain unit linked contracts

Answer 32

benefit is determined by performance of units whose value is linked to the performance of specific assets. There is a higher risk element for policyholders because the investment could lose value.

Question 33

What does monitoring in life insurance include

Answer 33

Mortality rates over a period claims experience costs incurred vs budgeted by products actual level of new business sold and policies lapsed vs expected

Question 34

Why can too much new business be bad financially

Answer 34

New business strain - upfront costs such as commission and marketing Operating costs - Exceeding sales expectations can elevate upfront costs

Question 35

Why can too little new business be bad financially

Answer 35

Fixed Costs Sustainability

Question 36

What is the impact of business mix and policy size

Answer 36

Policy Type mix - different policies incurring different levels of new business (high strain) Premium loading rate - Many expenses at the offset Average size policy - If average sum of policies is lower than anticipated then expense loading may not cover actual costs

Question 37

Why are surrender terms important

Answer 37

Insurers want to structure them to avoid financial strain when policies lapse. As early lapses can cause losses for insurer

Question 38

What are selective withdrawals

Answer 38

Occur when healthy, low risk policyholders are likely to lapse policies

Question 39

Why are selective withdrawals bad

Answer 39

They leave behind and unhealthy pool of policyholders which are more likely to claim which affects profits