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9. Policy: Whole life insurance of $10,000 issued to (40), payable at the end of the year of death. Premiums: Payable annually, calculated assuming the
9. Policy: Whole life insurance of $10,000 issued to (40), payable at the end of the year of death. Premiums: Payable annually, calculated assuming the equivalence principle. Mortality and Interest: Illustrative Life Table with i = 6% a. Determine the net annual premium assuming the equivalence principle. (3 marks) b. Now suppose that the insured is expected to experience a first-year mortality rate (probability of death) that is 5 times the rate used in the premium calculation in part a. The mortality assumptions for all other years remain the same. Calculate the expected loss-at-issue for this insured, based on the original annual premium from part a. (5 marks) c. Does it make sense that the expected loss in part b. is positive? Explain. (2 marks) 9. Policy: Whole life insurance of $10,000 issued to (40), payable at the end of the year of death. Premiums: Payable annually, calculated assuming the equivalence principle. Mortality and Interest: Illustrative Life Table with i = 6% a. Determine the net annual premium assuming the equivalence principle. (3 marks) b. Now suppose that the insured is expected to experience a first-year mortality rate (probability of death) that is 5 times the rate used in the premium calculation in part a. The mortality assumptions for all other years remain the same. Calculate the expected loss-at-issue for this insured, based on the original annual premium from part a. (5 marks) c. Does it make sense that the expected loss in part b. is positive? Explain. (2 marks)
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