You have been appointed as the person-in-charge in drafting a brand new 5 years’ term insurance...

You have been appointed as the person-in-charge in drafting a brand new 5 years’ term insurance policy for males and females at the age of 30 onwards for five years.

Age at Beginning	Number Living at	Number of dying	Present value of RM1 @ 5%
of the year	Beginning of year	during the year	Year	Factor
30	9,800,822	11,137	1	0.9524
31	9,789,650	11,062	2	0.9070
32	9,778,587	11,050	3	0.8638
33	9,767,537	11,233	4	0.8227
34	9,756,305	11,512	5	0.7835

Refer to the information above, you are required to generate Net Single Premium (NSP) for a five years’ term insurance policy for every USD1,000 issued to a male or female at the age between 25 to 29.

You are required to interpret the answer generated in (a).

Based on the NSP generated in (a), compute the net annual level premium for an ordinary life insurance policy.

Expert Solution

Net single premium= Amount of insurance * Probability of death * PV $1 for period funds are held
Age at beginning of year	Number living at beginning of year	Deaths during year	Probability of death Deaths during year/Average living during year	Benefit	Present value of $1	Net single premium
30	9800822	11137	0.00114	1000	0.9524	1.085736
31	9789650	11062	0.00113	1000	0.907	1.02491
32	9778587	11050	0.00113	1000	0.8638	0.976094
33	9767537	11233	0.00115	1000	0.8227	0.946105
34	9756305	11512	0.00118	1000	0.7835	0.92453
	48892901				Total	4.889808
Average	9778580

b Net single premium is the sum of present value of all expected benefits In the five year term insurance policy, all insured pay their full share of the five year mortality cost in advance. In the annual premium case, some insured will die before subsequent premiums become due. Policy holder has to pay a constant premium amount each year.

B)Calculation of Net annual level premium

Age at beginning of year	Number living at beginning of year	Deaths during year	Benefit	Present value of $1	PV of death claims(Deaths* benefit*PVF)	Premium received @$1 pa	PV factor @ time 0	Total PV of premium received
30	9800822	11137	1000	0.9524	10606879	9800822	1	9800822
31	9789650	11062	1000	0.907	10033234	9789650	0.9524	9323663
32	9778587	11050	1000	0.8638	9544990	9778587	0.907	8869178
33	9767537	11233	1000	0.8227	9241389	9767537	0.8638	8437198
34	9756305	11512	1000	0.7835	9019652	9756305	0.8227	8026512
					48446144			44457374

Living persons after age of 34 years =	9756305-11512=	9744793

PV of claims for living person=	974479310000.7835=	7635045315

Total PV of claims(death+Living)	48446144+7635045315=	7683491459

Net Annual level premium= Total PV of claims/ PV of premium received	7683491459/44457374 =	172.83

jeff jeffy answered 2 years ago

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