Question
(10 points)CTI is a life insurance company that plans to issue a new, high volume, low sum insured term insurance policy through direct marketing.Its current
(10 points)CTI is a life insurance company that plans to issue a new, high volume, low sum insured term insurance policy through direct marketing.Its current business is predominantly traditionally-brokered term insurance.
CTI assumes the following for calculating premiums and reserves.
(i) For brokered policies, mortality follows the Standard Ultimate Life Table, and expenses are 8% of each premium.
(ii) For direct-marketed policies, mortality follows the Standard Ultimate Life Table with a 5-year addition to the policyholder's age.Expenses are 3% of each premium.
(iii) i = 0.05
(iv) Premiums are calculated using the equivalence principle.
(1 point)CTI issues 5-year term insurance policies of 50,000 by direct marketing. At most ages the premium for this policy is greater than the initial premium for the policy described in part (e).Therefore, the new policy is expected to be very popular.
Explain why CTI might not launch this product despite its anticipated popularity.
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