Chapter 2 - Life insurance products (2)

Question 1

What is whole life assurance

Answer 1

It is a contract to pay a benefit on the death of the life insured whenever that might occur

Question 2

What is term assurance

Answer 2

It is a contract to pay a benefit on the death of the life insured within the term of the contract

Question 3

What can a decreasing term assurance be used for

Answer 3

• It can be used to repay the outstanding balance under a repayment loan
• It can be used to provide an income for a family with children until such a time as the children can provide for themselves

Question 4

What is a renewable term assurance

Answer 4

It is a term assurance with the option to renew. The renewal can be made without further medical underwriting

Question 5

What is a convertible term assurance

Answer 5

It allows the policyholder to convert the term assurance into another type of contract, such as a whole life or endowment assurance.

Question 6

Why may mortality risk arise from selective withdrawals

Answer 6

The policyholders most likely to withdraw from the contract are those in good health, leaving the insurance company with a sub-standard group of lives.

Question 7

Asset shares under (level) term assurances tend to be positive for roughly the final 2/3 or 3/4 of the policy term. How can a company justify not paying out at least some of this asset share when a policy withdraws at later durations?

Answer 7

• The company will have made a loss on early withdrawals where the asset share would have been negative
• There would be significant selective withdrawals
• Assets shares are never very large on a term assurance contract
• Term assurance asset shares will tend to be quite volatile
• Even at later durations asset shares are not always positive