Guarantees and Options

Question 1

Examples of 4 types of options?

Answer 1

Payment of premiums e.g Waiver
Benefits e.g. Lump sum
Use of contract proceeds
Other items

Question 2

Examples of 4 types of guarantee?

Answer 2

WoL policy -
Min surrender value, take value in cash
Value relating to a growth of an index which guarantees minimum growth rate

Question 3

How can you charge for gurantees and options?

Answer 3

1) Include in premiums (price) as an expense

2) Charge by reduction in benefits when due

Question 4

Why would you charge for guarantees and options when benefit due? Why not?

Answer 4

Cheaper premiums - attract people in

Adverse reaction when reduction happens

Question 5

What does the capital requirement for gurantees and options depend on?

Answer 5

Riskiness of benefit promised e.g. chance of it biting

Question 6

Why might you not be able to have a profitable product with options/gurantees?

Answer 6

The capital requirement may be far too high e.g. VA’s