MTHEL131 Chapter Notes - Chapter 2: Term Life Insurance, Disability Insurance, Life Insurance
11 Oct 2013
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Chapter 2: life and health insurance pricing fundamentals. Gambling creates a risk where none existed insurance transfers an existing exposure, and through pooling of similar loss exposures, reduces risk. Objectives of pricing: premium rates should be adequate, they should be equitable, they should not be excessive. Must be adequate in light of benefits promised inadequacy can lead to financial problems, if not insolvency total payments collected now and in the future (+investment earnings) should be sufficient to fund current and future benefits promised. Block of policies: all policies issued by insurer under the same rates and values and on the same form. Premiums should correspond with expected losses and other costs that the insureds bring to the insurance pool (people at higher risk will be paying more) Equity is one of the goals of underwriting. Rates not excessive should not be excessive in relation to benefits provided.
