M_F102_Life products 2 Flashcards
General features of life products (theoretical)
Sustainable products must provide profit to insurer and useful benefit to consumer.
Contractual benefit payable on life contingency in exchange for a premium paid to the insurer.
For each product, consider:
- needs met by the product
- risks to the insurer
- capital requirements
Endowment Assurances features
- Contract that pays a benefit on survival to a known date.
- Death benefit may also be payable.
- Surrender value usually available.
Endowment Assurances purpose
Operates as a savings vehicle, so can be used to fund for retirement, pay off an interest-only loan or to save for other planned expenses.
Endowment Assurances risks
Primarily risk of lower than expected investment returns but mainly borne by policyholder.
- Mortality risk to insurer depending on size of death benefit.
- Risk of expenses being higher than expected.
- Risk of withdrawals when asset share is negative.
Endowment Assurances Capital requirements
Capital requirements dependent on contract design, level of initial expenses and differences in pricing and valuation bases.
Risk Products
Whole Life Assurances
Term Assurance
Convertible Term Assurance
Term Assurance
- Pays out a benefit on death within the term of the contract, typically no surrender value.
Convertible Term Assurance
-Provides access to cheap cover under a term assurance policy with the option to extend the contract.
Annuities
Immediate Annuity
Deferred Annuity
Convertible Term Assurance
-Risk of selection at exercise date (priced over term of original contract).
Convertible Term Assurance
-Capital requirements generally higher than basic term assurance.
Term Assurance
-Generally cheaper than whole life assurance due to possibility of no benefit being paid.
Term Assurance
-Capital requirements usually quite small.
Term Assurance
-Risk of higher than expected mortality; selective withdrawals; early withdrawals; expense risk.
