A life insurer issued a special endowment insurance policy to a life aged 35, with term 5 years. The death benefit payable at the end of the year of death, is equal to £1, 000 plus the reserve that would have been held at the end of the year had the policyholder been alive. The maturity benefit (benefit paid at maturity if the policyholder still alive) is £1, 000. The premium is £200, payable annually in advance. The basis is AM92 ultimate life table and the interest is 4% per annum. (a) Find the reserve just before the payment of the 3rd premium by using the recursive relation between reserves. (b) Find the policy value at issuance using the same recursive method as above. (c) Explain why your answer to (b) is not consistent with the equivalence principle and give two examples of how this may have arisen.
A life insurer issued a special endowment insurance policy to a life aged 35, with term 5 years. The death benefit payable at the end of the year of death, is equal to £1, 000 plus the reserve that would have been held at the end of the year had the policyholder been alive. The maturity benefit (benefit paid at maturity if the policyholder still alive) is £1, 000. The premium is £200, payable annually in advance. The basis is AM92 ultimate life table and the interest is 4% per annum.
(a) Find the reserve just before the payment of the 3rd premium by using the recursive relation between reserves.
(b) Find the policy value at issuance using the same recursive method as above.
(c) Explain why your answer to (b) is not consistent with the equivalence principle and give two examples of how this may have arisen.
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