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P1.T3.702. Life insurance products and mortality tables (Hull)

Nicole Seaman

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Learning objectives: Describe the key features of the various categories of insurance companies and identify the risks facing insurance companies. Describe the use of mortality tables and calculate the premium payment for a policy holder.


702.1. Below is an extract (selected rows) from a mortality table:

Which is nearest to the probability of a man aged 80 years old dying in the second year (between ages 81 and 82)?

a. 0.39%
b. 1.76%
c. 6.20%
d. 7.31%

702.2. Below is an extract from a mortality table (ages 30 to 34 for males and females):

Suppose a woman aged 30 years old buys a $1.0 million whole life insurance policy and she pays an annual premium of $6,000. What is approximately the surplus premium in the first year of the policy?

a. There is no surplus premium; i.e., zero
b. $5,336.00
c. $5,885.00
d. $5,919.00

702.3. There are many different life insurance products, including term, whole, variable, universal, variable-universal, and endowment. Each of the following definitions is correct EXCEPT which is false?

a. Whole life insurance lasts for the whole life of the policyholder, while term life insurance lasts a fixed period (e.g., five years or ten years)
b. Universal life insurance is a type of whole life insurance where the premium can be reduced to a specified minimum level without the policy lapsing
c. Variable life insurance is a type of term life insurance where the cash value grows at a variable interest rate; e.g., a variable index such as LIBOR plus a margin
d. Endowment life insurance lasts for a specified period and pays a lump sum either (i) when the policyholder dies or (ii) at the end of the period, whichever happens first

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