MTHEL131 Chapter Notes -Life Insurance, Life Annuity, Term Life Insurance

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Liabilities that represent the amount that, with future premiums and interest earned, is expected to be needed to pay future benefits under those policies. Formula statutory policy reserve: the amount sufficient amount to pay future claims. Statutory reserve has no relationship with the insurer"s actual past experience. Retrospective reserve considered as the difference between the accumulation at interest and benefit of survivorship of the net premiums received in the past and the accumulation at interest with benefit of survivorship of the claims paid. Arises from the payment of a level net premium in excess of that needed to meet current mortality costs. Usually in the early years, the reserve is in excess and is therefore able to satisfy the spike in claims in later years. Add net premiums for current year to the terminal reserve of the preceding year, increasing the combined sum ( called the initial reserve)

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