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MTHEL 131 (32)
Chapter 28

Chapter 28 Reading Notes

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Department
Mathematics Electives
Course
MTHEL 131
Professor
David Kohler
Semester
Fall

Description
Chapter 28: Net Premiums Net Single Premiums * The NSP is based on three assumptions: 1. Premiums are paid at the beginning of the policy year 2. Death claims are paid at the end of the policy year 2. The death rate is uniform throughout the year The computation of net premium rates for life insurance requires information as to: 1) age and sex 2) benefits to be provided 3) mortality rates to be used 4) rate of interest assumed There is a difference in the table of mortality rates when calculating for term insurance (probability of death at current age) vs. whole life insurance (probability of death in the future) Term Insurance Covers a set period, promises to pay the sum insured if the insured dies within the period. * For a five-year term policy, the cost of each year’s mortality must be computed separately for each of the five years and then added together Whole Life Insurance Covers the whole of life, promising to pay the face amount whenever the death occurs. Each year’s premium is calculated separately. Method: Multiply: chance of dying each separate year * face amount of policy * (discount per number of years between the issue of the policy and the payment of death claims) Endowments Pure Endowments Pays face value if and only if the insured survives a specific period. Ex. 5 year endowment will pay if the insured is living 5 years form the purchase date Method: Multiply: single premium amount * probability of survival * interest This is different from a savings account because 1) you can’t take money out before the term is over 2) if you die during the term period, money is lost Endowment insurance Pays a certain sum if the insured dies within the specific term, or a similar sum i
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