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Exercise 7.9 A whole life insurance with sum insured $100 000 is issued to a select life aged 35. Premiums are payable annually in
Exercise 7.9 A whole life insurance with sum insured $100 000 is issued to a select life aged 35. Premiums are payable annually in advance and the death benefit is payable at the end of the year of death. The premium is calculated using the Standard Select Survival Model, and assuming Interest: 6% per year effective Initial Expenses: 40% of the gross premium plus $125 Renewal expenses: 5% of gross premiums plus $40, due at the start of each policy year from the second onwards (a) Calculate the gross premium. (b) Calculate the net premium policy value at time t = 1 using the premium basis. (c) Calculate the gross premium policy value at time t = 1 using the premium basis. (d) Explain why the gross premium policy value is less than the net premium policy value.
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