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Intros To Act Sci > Ch 9 Life Insurance > Flashcards

Ch 9 Life Insurance Flashcards

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1
Q

What is life insurance

A

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

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2
Q

What events can relate to life or death

A

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

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3
Q

What are the tow products related to death

A

Whole life policy
Term assurance policy

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4
Q

Explain whole life policy

A

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

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5
Q

Explain a lapse

A

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

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6
Q

Explain a term assurance policy

A

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

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7
Q

What are products related to survival

A

Pure endowment
Life annuities

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8
Q

Explain pure endowment

A

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

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9
Q

Explain life annuities

A

Provides the insured a regular payment while they are still alive

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10
Q

What is a whole life annuity

A

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

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11
Q

What is a temporary annuity

A

When the payment is agreed based on a specific term

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12
Q

What is a deferred annuity

A

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

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13
Q

What products are associated with life and death

A

Endowment

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14
Q

What is endowment assurance

A

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

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15
Q

What are distribution channels

A

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

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16
Q

What are four distribution channels

A

Intermediaries
Agency force
Own sales force
Direct sales

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17
Q

Explain intermediaries

A

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

18
Q

Explain agency force (tied agents)

A

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

19
Q

Explain own sales force

A

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

20
Q

Explain direct sales

A

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

21
Q

What is Group life assurance (GLA)

A

When employers get life insurance coverage for all their employees.

22
Q

How can GLA be used

A

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

23
Q

What type of underwriting is done in life insurance

A

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

24
Q

What are surrender values

A

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

25
Q

What are the paid up values

A

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

26
Q

Why is pricing life insurance contracts difficult

A

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.

27
Q

why is reserving important in life insurance

A

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

28
Q

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

A

Standard contacts
With profits contacts
index linked contracts
Unit linked contracts

29
Q

Explain standard contracts

A

Benefits agreed upon at the outset and do not change

30
Q

Explain With profits contracts

A

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

31
Q

Explain index linked contracts

A

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

32
Q

Explain unit linked contracts

A

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.

33
Q

What does monitoring in life insurance include

A

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

34
Q

Why can too much new business be bad financially

A

New business strain - upfront costs such as commission and marketing

Operating costs - Exceeding sales expectations can elevate upfront costs

35
Q

Why can too little new business be bad financially

A

Fixed Costs
Sustainability

36
Q

What is the impact of business mix and policy size

A

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

37
Q

Why are surrender terms important

A

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

38
Q

What are selective withdrawals

A

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

39
Q

Why are selective withdrawals bad

A

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

40
Q
A

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