MTHEL131 Study Guide - Final Guide: Life Table, Insurance Policy, York Region Transit
26 Oct 2017
School
Department
Course
Professor
1. Three Primary Financial Concerns of Canadians!
(1) Living too long
Fear run out of money before dying
(soln. Investments)
i.e. shortage of remaining asset!
(2) Dying too soon
Dying when your family still depends on you for financial support
(soln. Life Insurance)
i.e. dying in prime when kids are young!
(3) Becoming disabled or seriously ill
i.e. loss of ability to earn income/financial ramifications
(soln. Disability Insurance) !
Life and health insurance industries offer solutions to the concerns.
2. History of Insurance
•in 1757 London, the first petition of life insurance was presented to British
parliament.
•Purpose: protect the most vulnerable people in case of unexpected death of family
members.
** Life insurance goals: protect the surviving spouse and children.
•A person’s biggest asset is the ability to earn income
•Result: the petition was denied.
•Consequence: continued effort and lobbied the government
•Finally, in 1762, the petition was passed. The first life insurance company “Old
Equitable” was formed.
3. The Old Equitable
(1) Philosophy(3 features of a life insurance policy):
•Insurance policy is enforced for a person’s entire life
•level annual premium, i.e. always stay the same as the initial premiums
•prices vary based on age of entry
(2) Most valuable assets for the company:
•Human resources
•ability to predict
•ability to compete effectively
•ability to keep promises
•cash reserves
(3) Motivation for consumers:
•to secure the financial stability of their loved ones
•level premium
•promise that they will be paid when that day come
4. Possible incidents that would affect the life insurance business
(1) Problems
•Economic crisis: put those premiums in investment, but the projected return might
not be materialized.
•Disastrous events: there will be more death than expected
(2) Solutions:
•Temporarily reduce the amount of payment and finally pay in full amount.
•Reserve the right to raise premium.
5. Requirement to make a contract
•Life insured must be proved in good health.
•Life insured and insured must be in a relationship if not the same person
6. First case of life insurance
1538, London!
Process!
Richard Martin owned a company with manager William Gibbons!
RM calculated that the loss of the death of WG was 383 eu.!
RM paid 8% of the 383 to 16 club members and would receive the total amount if
WG died within a year!
WG died and RM got money!
Characters!
Sum insured: 383!
Insurer: country club guys!
Insured: Richard Martin!
Life insured: the manager!
Beneficiary: Richard Martin!
Premium: 8% of 383
7. Reason to fail
1.Lack of information on mortality table
- mortality table: death rate, key input for actuary life and life insurance
- unstable death rate caused mortality table to be worthless
2.Plagues and pestilences
- diseases broke out in Europe during 1300 to 1600. 2/3 of Europe was wiped out by
black plague and casualties were not counted. I.e. Great plague of London in 1665
killed thousands.
- the most effective solution is proper sanitation
3.Confusion on behalf of general public between gambling and life insurance
- the church viewed life insurance are gambling on loved one’s death
-some individuals were uneducated and believed in superstition that life insurance
would bring punishments.
*Insurance is a financial arrangement where if you encounter any loss, you will be
covered. It is not intended to put the person in a better financial before the loss, only
to be put in an equal position. It is for social benefit, keeps surviving spouse the
children.
*Gambling is a deliberate wager of money, where the primary goal is to win more
money. There is no social benefit.
8. Main Insurance
1847 Canada life
1870 Mutual life
1871 Sun life/ London life / Confederation life
1881 North America Life
1887 Manual Life
9. Insurer Market:
57% of the Canadian market is controlled by 3 firms:
•Great West group: GWL, Canada Life, London life
•Manulife
•Sun Life
10. Advantages
(1)Life insurance proceeds pass directly to the beneficiary, does not travel through the
estate, which can save fees.
(2)Proceeds are protected from creditors
(3)Death benefits are received by the beneficiaries tax free.
(4)Certain types of polices with cash value. Can borrow money against life insurance
regardless your credits.
(5)Confidential, no public record of whom a person’s beneficiary is
(6)Life insurance companies are secure.
(7)Available to most people
11. Disadvantages
(1)Not available to individuals in poor health
(2)If a person lies on their application, the claims will be denied.
(3)Some people argued as a complex product difficult to understand
(4)Life insurance premiums limit the amount of available funds for current
consumption and investments.
12. Canadian Insurance Today in Canada
(1)Reliable(pays out over 1.1 billion per week), Wide range of products
- insurance: life insurance, health insurance(dental, therapy, disability, long-term care,
critical illness)
- financial products: mortgage, annuity, GIC, RRSP, mutual funds
- living benefit products
(2)Improve the quality of life of Canadians
- > 37million Canadians buy the life health insurance, many of them are covered by
group insurance.
- benefits greater than 1.1 billion every week, 90% of that number pay to living, 10%
pay to beneficiary as death benefits.
(3)Life and health insurance industry plays an important role in meeting the
financial needs of 3 levels of government (federal, provincial, municipal)
- Tax income cannot cover the expense of government, to raise money, the
government issues bonds, insurance company is the big buyers.
- Other main buyers: banks, mutual fund manager, pension fund manager, other
Document Summary
Three primary financial concerns of canadians (1) living too long. Fear run out of money before dying (soln. Investments) i. e. shortage of remaining asset (2) dying too soon. Dying when your family still depends on you for financial support (soln. Life insurance) i. e. dying in prime when kids are young (3) becoming disabled or seriously ill i. e. loss of ability to earn income/financial ramifications (soln. Richard martin owned a company with manager william gibbons. Rm calculated that the loss of the death of wg was 383 eu. Rm paid 8% of the 383 to 16 club members and would receive the total amount if. Premium: 8% of 383: reason to fail. Mortality table: death rate, key input for actuary life and life insurance. Unstable death rate caused mortality table to be worthless. Diseases broke out in europe during 1300 to 1600. 2/3 of europe was wiped out by black plague and casualties were not counted.
