L1: Modern Insurance Contracts Flashcards
Benefits of modern insurance contracts
flexible and combine insurance coverages with significant investment element.
4 reasons for changes to modern contracts
- competition with mutual funds and banks for policyholder savings
- changing demographics and lifecycles impact insurance design
- better informed customers
- development in science and technology
Universal Life Insurance
- whole life contract with transparent cash values: savings account with life insurance.
- death benefit is fixed/increasing, premiums earn interest.
- profits shared through credited interest rate
Universal Life Insurance - Savings component
premiums and credited interest deposit into a notional account to cover costs and expenses. Policyholder can reduce or skip paying payments as long as notional account is sufficient
Unitized with profit (UWP)
insurance contract evolved from traditional with profit. Premiums purchases units of shares in notional asset portfolio. Increase in unit value increases death benefit as revisionary bonus
Equity Linked Insurance
benefits linked to performance of specified investment funds. Benefits follow gains and losses of investment assets.
Equity Linked Insurance what policyholder receives
what is GMDB and GMMB
will receive at least value of their accumulated premium upon death or survival to end of contract.
there is a guaranteed minimum death benefit (GMDB)
and guaranteed minimum maturity benefit (GMMB)
Variable Annuities / Segregated Funds
North America, pay death benefit in lump sum, can convert to annuity, GMDB or GMMB.
Unit-Linked Insurance
sold outside NA, policyholder fund expressed in units/share of underlying assets, No GMMB and death benefit is multiple of value of policyholder units at death
Unit-Linked Insurance is based on…
real funds, not a notional collection of assets like the Unitized with profit (UWP)
