CISC 121 Lecture Notes - Lecture 5: Whole Life Insurance, Equivalence Principle, Term Life Insurance

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CISC 121 Full Course Notes
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CISC 121 Full Course Notes
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As we saw in chapter 4, at the beginning of a policy there is a balance between the expected present value of the benefits and the expected present value of the premiums when the equivalence principle is employed. After a few years, however, the situation will probably be different: the apv of the remaining premiums may not be the same as the apv of the benefit. The difference between these two values forms the reserve. If the apv of the company"s liabilities is greater than its assets with regards to a particular policy, then the reserve will be positive. If the opposite is true, then the reserve will be negative. We will again be using the loss random variable: in the last chapter, we always dealt with l at time 0 (the start of the policy). E[ jl | k(x) = j, j+1, j+2, ] = e[ jz | k(x) = j, j+1, j+2, ]

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