Lesson 31: Actuarial Applications Of Options

Question 1

What are variable annuities?

Answer 1

Products similar to mutual funds, but offer tax advantages and annuity benefits. The policyholder invests a sum of money. This amount may be paid all at one, at the time of purchase, or on an annual basis.

Question 2

What is a guaranteed minimum death benefit (GMDB)?

Answer 2

Guarantees that upon death, the policyholder gets a minimum amount, regardless of the account value. Typically the guaranteed amount is the premium, in which case it is called a return of premium guarantee.

Question 3

What is an earnings enhanced death benefit?

Answer 3

Pays when the account value is less than the premium. It pays a percentage of the excess of the account value over the premium.

Question 4

What is a guaranteed minimum accumulation benefit?

Answer 4

Guaranteed a minimum value for the account at a specific time. Acts like a put option.

Question 5

What is a guaranteed minimum withdrawal benefit?

Answer 5

Guarantees that after the policyholder reaches a specific age, he may withdraw a certain amount every year for life.

Question 6

What is a guaranteed minimum income benefit?

Answer 6

A guaranteed whole life annuity purchase rate at specified ages.