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.
Term Assurance
-These scenarios have a time limit that distinguishes from the needs met by a whole life product).
Term Assurance
-Can be used to cover the balance of a loan, or can be used to provide for children until they become dependent, or for key man cover for businesses.
Endowment Assurances Capital requirements
- Conventional without profit contracts (level premium and level benefits) run a risk of inflation to the insured, and is also inflexible to accommodate changing needs and levels of disposable income.
Endowment Assurances Capital requirements
- Index linked versions are possible. In contrast with unit-linked contracts, there is a risk to the insurer of being unable to match the performance of the index.
Endowment Assurances Capital requirements
-With profit and unit linked contracts also exist.
