Term
| There were three methods organizations used over the years to fund life ins.- one is the Mutual Benefit Method - define: |
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Definition
| This is a funding method that mutual benefit societies used in obtaining money to pay death claims; they collected money after the death of the person who was insured. |
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Term
| Three major problems were associated with the mutual benefit method: |
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Definition
1. Collecting the money to pay the
death benefits.
2. As members died and resigned, the
group got smaller and smaller. This
affected the $ collected and the
amt. of the benefit was upon death.
3. As members grew older, the number
of deaths increased each year,
causing the cost to increase. |
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Term
| The second funding method was Assessment Method - define: |
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Definition
| The organization that offered insurance coverage estimated its operating costs for a given period, usually one year. The operating costs included anticipated death claims and the administrative expenses. |
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Term
| The most modern method used to price life insurance is the Legal Reserve System - define: |
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Definition
| This method is based on laws requiring the insurance company to establish policy reserves which are liabilities that represent the amount the insurer estimates it needs to pay policy benefits as they come due. |
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Term
| The Legal Reserve System is based on several premises - what are they? |
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Definition
1. The amt. of the benefit payable should be specific or calculable before the insured's death.
2. The money needed to pay benefits should be collected in advance.
3. The premium an individuals pays for an insurance policy should be directly related to the amt. of risk the ins. co. assumes for that policy. |
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Term
| Ins. Co. Actuaries establish premium rates. A premium rate is a charge per unit of insurance coverage. There are three factors included in the calculation of life insurance premium rates - what are they? |
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Definition
1. cost of benefits
2. investment earnings
3. expenses |
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Term
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Definition
| Equals all of the insurer's potential payments of benefit obligations to customers multiplied by the expected probability that each benefit will be payable. |
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Term
| The probability that policy proceeds will be payable in a given year is measured by mortality statistics - what is Mortality and what is Mortality rate? |
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Definition
| Mortality is the incidence of death among a specified group of people. Mortality rate is the rate at which death occurs among a specified group of people during a specified period, typically one year. |
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Term
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Definition
| It equals all of the insurer's potential payments of benefit obligations to customers multiplied by the expected probability that each benefit will be payable |
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Term
| The probability that policy proceeds will be payable in a given year is measured by Mortality statistics - what is Mortality and What is Mortality rates? |
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Definition
| Mortality is the incidence of death among a specified group of people and Mortality rate is the rate at which death occurs among a specified group of people during a specified period. |
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Term
| How is Mortality rates used by insurance company's to price policies? |
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Definition
| Actuaries in an insurance company are concerned with estimating the number of deaths that will occur in a given group of insureds. This is known as Block of Insureds. They use this information to rate policies. |
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Term
| Do women or men live longer according to Mortality Table Statistics |
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Definition
| Women live longer; therefore, women's insurance is rated lower than mens at the same age. |
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Term
| The second factor that insurance companies consider when establishing life insurance premium rates is their investiment earnings - what is this? |
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Definition
| This is money insurers earn by investing permium dollars. Premium dollars are the primary source of funds used to pay life insurance claims. Insurance companies invest these dollars in a variety of ways. |
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Term
| What is the difference between simple interest and compound interest? |
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Definition
| Simple interest is interest paid on the original sum. Compound interest is paid on the original sum plus the accrued interest. Ex of compound: Original Loan is $1000 x 10% interest - first year interest is $100. Then for second year, take $1100 x 10% = $110. Compund the two for a total of $1210.00. |
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Term
| Explain how Net Premiums, Loading and Gorss Premium are tied together: |
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Definition
| Net premium is the amount of money the insurer needs to provide the policy benefits. Loading is the insurer's cost of doing business. The Gross Premium are those two combined. |
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Term
| What is Level Premium Pricing Systems |
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Definition
| This is a life insurance pricing system that allows the purchaser to pay the same premium amount each year the policy is in force. Premium rates for Level Premiums policies are higher |
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Term
| Insurance Co. primarily use two methods of changing the price of a policy after it has been issued - what are they? |
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Definition
1. Reduce the price by returning to
policyowners a portion of the prem.
that was paid for the coverage. This
refund is called a policy dividend.
2. Changing the values of pricing
factors while the policy is in force
thus changing the amount charged to
the policyowner for the coverage. |
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Term
| Life Insurance can either be issued on either a Participating or Nonparticipating basis - what is the difference? |
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Definition
| Participating is one which the policowner shares in the insurance company's divisible surplus. A Nonparticipating policy os one in which the policyowner does not share in the insurer's surplus. |
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Term
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Definition
| Surplus is the amount by which the company's assets exceed its liabilities and capital. The amt. of that surplus is available for distribution - which is called Divisible Surplus. The policyowner's share of this surplus is called Policy Dividend. Policy dividend amounts are known in advance so they are guaranteed to be paid. |
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Term
| Are the rates higher or lower for Participating or Nonparticipating policies? |
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Definition
| The premium rates for nonparticipating policies are lower because insurers issuing nonparticipating policies often use less cautious assumptions regarding mortality, investment earnings, expenses and contingencies. |
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Term
| What is meant by the term RESERVES? |
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Definition
| Reserves are liabilities representing the amounts of money an insurer estimates it will need to pay its future obligations. There are two types: Policy Reserves and Contingency Reserves. |
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Term
| What is the difference between POLICY and CONTINGENCY RESERVES? |
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Definition
The Difference between the face amount of a policy and the policy reserve at the end of any given policy year is the Net Amt. of Risk. Ex: Net Amt. of Risk = Face Amount - Policy Reserve.
Contingency Reserve provides a safety margin in the case an unusual condition occurs and causes costs to rise. This way there is more set aside if this happens. |
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