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Life Insurance ch 1
Life Insurance
Chapter 1
Definition
First
Topic
Contract of Insurance
"Contract of Insurance"
Contract where an insurer takes premium to make a payment to a client in an even covered by the insurance
"Contract of Insurance"
GOOD FAITH: loya way of acting, free of bad intent.
Good faith governs the parties included at the time the obligation is created
Obligation of the Client
The client needs to be honest and responsible. To declare all information relevant to the study and risk assessment.
Obligation of the Insurer
The insurer must inform the insured of the scope of the coverage provided. The insurer must compensate the insured and have the financial resources required to meet its obligations.
Types of
Contracts
How it
Works
Individual Insurance
Life insurance is considered individual if only one person is insured. The policyholder is not required to be the insured.
Individual Insurance
- Term
- Permanent
- Universal
Multi-life Insurance
Protection for 2 or more lives using the same insurance contract
Multi-life Insurance
- First to die
- Last survivor
Last Survivor
2 type of last death cases:
1. Cost of coverage ends upon the first death
2. Cost of coverage carries to the last death.
Setting Premiums
Rate making
Customer
Overview
Cost
Risk
Admin
Changes
Rate Making
It is the process in which the rates are calculated by Actuaries, in order for the insurer to sell its products.
Rate Making
An actuary is a specialist in financial mathermatics, statiscics and risk theory that assess the profitability required of insurance products.
Requirements of Rate making
1. Cost of an insurance product
2. Risk level associated with a group of individuals
3. Administration charges and interest from invested insurance premiums
4. Changes of rates as coverages changes
Setting rates are based on 3 main factors
1. Mortality rate
2. Expected interest rate
3. Administration charges
Mortality Rate
It is the ratio of deaths according to the population over a period of time and over a specific area.
Factors of mortality rates
- age and sex
- place of residence
- occupation
- socio-economic status
- state of health
- lifestlye
Expected interest Rate
It refers to the average expected return on money collected and invested by the insurer through life insurance premiums.
Expected interest Rate
- Premiums are set high enough for profit margin
- Interest rates varry aroudn 4-5%
- The higher the interest, the lower the premium because the insurer has more flexibility
Administration Charges
Charges include seeling expenses such as commissions paid, distribution network, cost of preparing contracts and operating expenses
Other Factors
- Risk Levels
- Face amount of the death benefit
Risk Levels
Actuaries asses the risk associated with a given population.
Risk Levels
- Standard risk
- Preffered risk
Premium is lower than standard
- Rated risk
Premium is higher than standard
Elimination of Rated risks
Elimination of Rated risks
When a premium has been set on the basis of a rated risk, it can be brought down to standard level if the insured has filed a request and has provided the medical proof required by the insurer.