Question
Consider a 2-year term universal life insurance on (40). The death benefit is $50,000 plus the account value at the end of the year of
Consider a 2-year term universal life insurance on (40). The death benefit is $50,000 plus the account value at the end of the year of death. The death benefit is payable at the end of the year of death. You profit test the contract using the following basis:
(i). The corridor factor requirement is 2.5
(ii). Premiums paid at the beginning of years 1 and 2 are $2000 and $3000, respectively.
(iii). The projected account values at the end of years 1 and 2 are $1950 and $5000, respectively.
(iv). Incurred expenses are $200 at inception, $50 plus 1% of premium at renewal, $100 on surrender and $100 on death.
(v). The surrender charge is $800 for all durations.
(vi). The insurer's earned rate of interest is 10% per year for both years.
(vii). The mortality rates from year t-1 to t are assumed to be 1.2, where is taken from a life table. =0.00278 and =0.00298
(viii). Surrenders occur at years ends only. The surrender rates for years 1 and 2 are 10% and 100%, respectively.
(ix). The insurer holds the full account value as reserve for the contract.
(a). Find the profit signature.
(b). Given that profits and premiums are discounted at annual effective rate of 10%, calculate the expected present value at issue of profits of the policy, and the profit margin.
(d) gho+t -1 (d) gho+t -1Step by Step Solution
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