Life Insurance Ch.2
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20 terms
Terms | Definitions |
|---|---|
 Law of Large numbers | applied to insurance, holds that the greater the number of similar exposures (e.g., lives insured) to a peril (death), the less observed loss experience will deviate from expected loss experience. Risk and uncertainty diminish as number of exposure units increases. |
| Peril | a cause of loss, such as fire or windstorm, with respect to property, or an accident with respect to health |
| Gambling Vs. Insurance | Gambling creates a risk where none existed. Insurance transfers an already existing exposure and, thorugh pooling of similar loss exposures, actually reduces risk. |
| Three life and Health insurance Pricing Objectives | 1. Premium rates should be adequate, 2. They should be equitable, 3. They should not be excessive |
| Rate Adequacy | for a given block of policies, total payments collected now and in the future by the insurer plus the investment earnings attributable to any net retained funds should be sufficient to fund the current and future benefits promised plus cover related expenses |
| Block of policies | all policies issued by the insurer under the same schedules of rates and values on the same policy form |
| Rate Equity | rates charged for life and health insurance should be equitable to policyowners. Equity means charging premiums commensurate with the expected losses and other costs that insureds bring to insurance pool |
| Underwriting | process by which insurers decide whether to issue insurance to a person and the terms and prices |
| Rates not excessive | Life and health insurance rates should not be excessive in relation to the benefits provided |
| Life and Health Insurance Pricing Elements | 1. the probability of the insured event occuring, 2. the time value of money, 3.the benefits promised, 4. loadings to cover expenses, taxes, profits, and contingencies |
| Mortality tables | show yearly probabilities of death |
| Morbidity tables | show yearly probabilities or other information on loss of health |
| Net rates | are insurance rates calulated to recognize 1. the probability of the insured event, 2. the time value of money, and 3. the benefits promised |
| Loadings | amts. to cover expenses, taxes, contingencies, and profits |
| Gross rate | the amt. charged policyowners (Net rate + Loadings) |
| Cash surrender value | savings element in every cash-value insurance policy |
| Net amt. at risk | the amt of pure life insurance protection at any point is the difference between the policy reserve at that point and the face amt. |
| Surrender Charge | a penalty for early policy termination |
| Current Assumption policies | allow policy values to deviate from those illustrated at policy inception |
| Asset-Share Calculation | a simulation of the anticipated operating experience for a block of policies using the best estimates for each future policy year |
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