Life Insurance Products Flashcards
What steps form the product life cycle?
PPAMUCEV
Product design
Pricing
Administration
Marketing and sales
Underwriting
Claims management
Experience monitoring
Valuation
Surrender
When a policyholder fails to pay all of the premiums required under the contract and receives a lump sum surrender value in compensation for premiums paid to date.
Paid up
When a policyholder fails to pay all of the premiums required under the contract and the policy continues without the policyholder paying any more premiums but for a reduced benefit amount
Withdrawal
The termination of a policy. Either by surrender or lapse.
List the forms of benefit / structural bases of policy
Without-profits
With-profits
Unit-linked
Index-linked
Influences on capital requirements of a business
1) Contract design
2) Premium payment frequency
3) Relationship between pricing and supervisory bases
4) Additional solvency capital requirements
5) Level of initial expenses
Marginal costs
Costs incurred because the policy exists/is sold e.g. Commission, postage
Persistancy risk
The risk that the number of withdrawals is different to that expected
Continuation option
Allows employees leaving an employer’s group life scheme to take out individual life cover (either WLA or TA) without medical underwriting
Renewable term assurance
A term assurance with the option to renew at the end of the original contract without further medical underwriting unless the benefit level is increased. Premiums may often be guaranteed to be the same as those on new business.
Convertible term assurance
A term assurance with the option to convert to another type of contract, such as a WLA or EA without further medical underwriting unless the benefit level is increased. Premiums may often be guaranteed to be the same as those on new business.
What does it mean to call a product “conventional”?
Benefits are expressed in terms of values as at the expected claim date e.g. R1m on death within 20 years, rather than in current terms.
Key matching risks
CUNT
Currency
Uncertainty
Nature
Timing
What does IFA stand for?
Independent Financial Advisor (i.e. An independent broker)
Bid price
The maximum price at which the market is willing to buy an asset
Offer price
The minimum price at which the market is willing to sell an asset
Unit bid price
The price at which the insurer will buy units from the policyholder
Unit offer price
The price at which an insurer will sell units to a policyholder
When can the unit fund become negative?
1) when investment return is low
2) when low unit fund size leads to large mortality charges
3) when risk charges increase
How do negative non-unit reserves arise?
Non unit reserves are calculated prospectively as the EPV of future outgo less the EPV of future income.
We project the future outgo (actual expenses and cost of minimum guaranteed benefit) and the future income (management, risk and admin charges, and surrender penalities).
For a profitable contract, future income is expected to exceed future outgo, leading to a negative reserve.
Conventional without-profits policies
Characterized by fully guaranteed benefits and (usually) level regular premiums
With-profits policies
Policies where the policyholder has an entitlement to share in surplus arising within the with-profits fund.
Unit-linked policies
Policies where benefits are directly linked to the investment performance of a fund of the policyholder’s choosing. Characterised by a lower level of guarantees on benefits and premiums
Index-linked policies
Policies where benefits are directly linked to an investment/economic index of the policyholder’s choosing, and are guaranteed to move in line with the performance of that index
Which product designs are most profitable? (a little abstract I admit….)
The policies that provide greatest utility to policyholders.
Why?
1) they sell in highest volumes
2) they permit the company to build in higher profit margins
3) they pose lower lapse risk
T-ROADS
Ratings
Options
Amounts
Definitions
Structural basis
Discretionary benefits
Any benefit whose level depends on the decision of the company rather than being defined in policy conditions
