Tutorial 10 - Policy Values
Lecturer: Trần Minh Hoàng
Actuarial Mathematics 1
Lecturer: Trần Minh Hoàng Tutorial 10 - Policy Values Actuarial Mathematics 1 1 / 11
Question
Consider a fully discrete n-year endowment insurance on (x) of which benefit is
$1.
a) Determine the annual premium P using the Equivalence Principle.
b) Show that the policy value at time k is given by
äx+k:n−k
kV =1− .
äx:n
Lecturer: Trần Minh Hoàng Tutorial 10 - Policy Values Actuarial Mathematics 1 2 / 11
Question
For a fully discrete whole life policy on (45) with sum insured $1000:
Net premiums are calculated using the equivalence principle.
Mortality is uniformly distributed with ω = 120.
i = 0.05.
a) Calculate L10 if the policyholder dies at age 85.1.
b) Calculate 10 V.
Lecturer: Trần Minh Hoàng Tutorial 10 - Policy Values Actuarial Mathematics 1 3 / 11
Question
For a fully continuous whole life insurance on (40):
µ40+t = 1/(60 − t).
i = 0.05
Calculate the net premium reserve at time 20, 20 V.
Lecturer: Trần Minh Hoàng Tutorial 10 - Policy Values Actuarial Mathematics 1 4 / 11
Question
A special fully discrete whole life insurance on (45) provides a benefit of $1000 for
death in the first 20 years, $2000 for death thereafter, payable at the end of the
year of death. Annual premiums are P during the first 20 years and 2P thereafter,
and are determined using the equivalence principle.
A45 = 0.3
1
A45:20 = 0.05
1
A45: 20 = 0.5
i = 0.04
Calculate 20 V.
Lecturer: Trần Minh Hoàng Tutorial 10 - Policy Values Actuarial Mathematics 1 5 / 11
Question
For a special fully discrete 20-year endowment insurance on (40):
The death benefit is 1000 for the first 10 years and 2000 thereafter. The pure
endowment benefit is 2000.
The annual net premium is 40 for each of the first 10 years and 100 for each
year thereafter.
q40+k = 0.001(k + 1), k = 8, 9, ..., 13
i = 0.05
ä51:9 = 7.1
Calculate the net premium reserve (policy value) at the end of year 10.
Lecturer: Trần Minh Hoàng Tutorial 10 - Policy Values Actuarial Mathematics 1 6 / 11
Question
For a deferred temporary life annuity on (57), you are given:
µ = 0.04, δ = 0.06
Premiums are payable continuously for the first two years at the rate of P.
Annuity benefits are paid at the beginning of the year.
The annuity payment at the beginning of year k is
2(9 − k) if k = 4, 5, .., 9
A(k) =
0 otherwise
Calculate the net premium reserve at the end of year 3.
Lecturer: Trần Minh Hoàng Tutorial 10 - Policy Values Actuarial Mathematics 1 7 / 11
Question
For a special 3-year deferred life annuity-due on (x), you are given:
The first annual payment is 500.
Subsequent annual payments increase 5% per year compounded.
There are no death benefits.
Level annual net premiums are payable for 3 years.
i = 0.05
n ex+n px+n
0 30.3 —
1 29.6 —
2 29.2 0.97
Calculate the net premium reserve at the end of year 2.
Lecturer: Trần Minh Hoàng Tutorial 10 - Policy Values Actuarial Mathematics 1 8 / 11
Question
For a whole life insurance policy of $100,000 on (60), you are given:
Mortality is uniformly distributed with ω = 100.
i = 0.05
Gross premiums are paid annually, and are determined using the equivalence
principle.
Death benefits are paid at the moment of death.
Commissions are 50% of gross premiums in the first year, 5% in renewal
years. They are paid at the same time as the premium is paid.
Settlement expenses are $100. They are paid at the time the death benefit is
paid.
Other expenses are $200 in the first year, 10 in renewal years. They are paid
at the beginning of the year.
Calculate the gross premium reserve at the end of the tenth year.
Lecturer: Trần Minh Hoàng Tutorial 10 - Policy Values Actuarial Mathematics 1 9 / 11
Question
For a fully continuous 3-year endowment insurance on (x),
µ = 0.01 and δ = 0.05.
Premiums are determined by the equivalence principle.
Calculate Var(L2 ).
Lecturer: Trần Minh Hoàng Tutorial 10 - Policy Values Actuarial Mathematics 1 10 / 11
Question
Karen, age 35, purchases a 30-year deferred whole life annuity-due with annual
payments of 10,000 beginning at age 65. Premiums are payable for 30 years. Level
net premiums are payable each year. If Karen dies during the deferral period,
premiums are refunded with 5% interest. You are given:
Mortality follows the Standard Ultimate Life Table.
i = 0.05.
Calculate the net premium reserve at the end of year 20.
Lecturer: Trần Minh Hoàng Tutorial 10 - Policy Values Actuarial Mathematics 1 11 / 11
