Section 1: Survival Model

Question 1

Life insurance policy

Answer 1

Pays a lump sum benefit either on the death of the insured or on survival to a pre-determined maturity date

Question 2

Life Annuity Contract

Answer 2

Makes a regular series of payments while the recipient (annuitant) is alive.

Question 3

Term Insurance

Answer 3

pays a lump sum benefit on the death of the insured if the death occurs within a fixed term (Typically 10 to 30 years).

Question 4

Types of term insurance and their definitions (4 types)

Answer 4

1. level - death benefit is level throughout the term of the contract
2. decreasing - death benefit and (usually) premiums decrease over the term of the contract
3. Renewable term - policyholders have the option to renew the policy at the end of the original term without further evidence on their state of health
4. Convertible term - policyholders have the option to convert the term insurance policy to a whole life or endowment insurance policy at the end of the original term without further evidence of their state of health

Question 5

Whole life insurance

Answer 5

pays a lump sum benefit on the death of the insured whenever it occurs

Question 6

Endowment Insurance

Answer 6

pays a lump sum benefit either on the death of the insured or at the end of the specified term , whichever occurs first.

Question 7

Participating Insurance

Answer 7

Shares profits earned on the invested premiums with the policyholder

Question 8

Universal life insurance contracts

Answer 8

Allow policyholders to adjust their premiums and death benefits as long as the accumulated value of the premiums is sufficient to pay for the death benefits.
(Common in North America)

Question 9

Unitized With-Profit

Answer 9

UK insurance contract that evolved from the traditional with-profit insurance policy. Premiums are used to purchase units (shares) of an investment fund (with-profit fund)

(withdrawn in early 2000s)

Question 10

Equity-linked insurance: Variable Annuity Contracts

Answer 10

Typically 20-year term policies with premiums allocated to one or more investment options. Death benefits vary with fund performance as they are the accumulated value of the premiums at maturity.

Question 11

Equity-Linked Insurance: Equity-Indexed Annuity (EIA) contracts

Answer 11

Offer policyholders the potential to earn returns based on the performance of an external stock index with a down-side protection through a guaranteed minimum return on premiums.

Question 12

adverse selection

Answer 12

Where individuals with very high risk buy disproportionately high amounts of insurance, leading to excessive losses to the insurer. (Underwriting helps reduce this)

Question 13

Whole Life Annuity

Answer 13

Makes payments until the death of the annuitant

Question 14

temporary life annuity

Answer 14

makes payments for some maximum period while the annuitant is alive

Question 15

single premium deferred annuity (SPDA)

Answer 15

The policyholder pays a single premium to purchase the contract. The annuity payments are deferred, which means they will be made starting at some future date specified by the contract. Payments then continue as long as the annuitant survives.

Question 16

single premium immediate annuity (SPIA)

Answer 16

The policyholder pays a single premium to purchase the contract. The annuity payments then start immediately. (Often used to convert a lump-sum retirement benefit into a stream of annuity payments)

Question 17

Three Properties S(t) must satisfy (survival function)

Answer 17

1. S(0) = 1
2. S(infinity) = 0
3. S(t) is a non-increasing function of t.

Question 18

Three properties F(t) must satisfy (cumulative dist. function):

Answer 18

1. F(0) = 0
2. F(infinity) = 1
3. F(t) is a non-decreasing function of t.

Question 19

Age Rating

Answer 19

Adding additional years to a person’s age, effectively treating the person as a different aged risk.

Question 20

Adjusting force of mortality

Answer 20

The force of mortality for substandard lives can be adjusted to reflect extra mortality risk. (ex. adding a constant)