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MTHEL 131 (111)
David Kohler (106)

Lecture 3

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Mathematics Electives
David Kohler

MTHEL 131- Oct 2 nd 10/2/2013 3:30:00 PM Two Questions  How much coverage is required o How much cash do you need if you were to die tomorrow o Things to consider (review previous note)(referring to Bob and Jane) Capital Needs Analysis  Funeral (15k)  Debt (80k)  Mortgage (200k)  Emergency Fund (15k)  Education Fund (80k) Total = 390k  Income Replacement (1.5k/Month)  Years required (20yrs)  Income Replacement Capital (360k)  Total Capital Required (750k)  Group insurance (-250k)  Total insurance needed (500k) Another Option is to take an annuity as a more secure substitute for the Income Replacement Three Primary Principals in pricing insurance (Old Equitable) 1. Mortality 2. Investment Returns 3. Expenses *Buffer PREMIUMS RESERVE Excess $1,000,000 because the old equitable…  Did well on investments  Charged too much  Expenses were lower that they projected  Not as many deaths as expected How to get the excess money back to the policy owners: (The Policy Owners Own the Company)  Experience Dividend 1. Pro 2. Cash 3. Accumulation (On Deposit) (a small savings account attached to the policy) 4. P.U.A. (Paid Up Additions) Participating Policy (Par Policy)- A life insurance policy that participates in Experience Dividend  Guaranteed Benefits  Guaranteed Premiums  More Expensive Non-Par Policies- Do no participate in the distribution of any surplus  Flexible Premiums  Flexible Benefits  Less expensive Mutual Company- Owned by the Participating Policy Owners  No takeover (advantage)  Difficult to raise money (disavantage) Stock Company- Owned by the shareholders or stock holders.  Take Over (buy over 51% of the shares) (disadvantage)  Issue More Shares to raise money (advantage) Mutual Life Canada Life Wanted to go from a Mutual Company to a Stock Sun Life Demutualization Manu Life st For Example: Mutual Life Valued at $2.0 Bill (1999 they were 1 ) There is 1,000,000 Participating Policy Owners Must be divided between all of the Par
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