Parte 3 LIFE INSURANCE class3
For Your Review The greater the risk, the higher is the premium. Actuaries base life insurance premiums on three factors: mortality, interest, and expenses. Policies issued since 2009 must be based on the 2001 CSO table. The 2001 CSO rates reflect the mortality experience of the entire U.S. population for every age beginning at birth and concluding at age 120.
For Your Review The more interest the insurer can earn through its investments, the less premium it needs to charge. The load factor (expense charge) reflects the costs (other than mortality) that the insurer expects to incur on the policy. For those policyowners who choose a premium mode other than annual, insurance companies add a modest cost to reflect lost earnings and increased administrative cost.
Which of the following best describes the premium tax insurance companies must pay when they receive premiums?
It is a state tax imposed by relatively few states. Because It is a state tax, imposed by relatively few states, that most companies pass on to their policyowners in some way.
Which one of the following statements best describes if and when a traditional whole life insurance premium may change under the level premium concept?
Premiums are set and remain fixed over the full term of the premium-paying period. Because Under a level premium payment plan, the premium is set and remains fixed over the policy's term.
In the actuary's calculation of life insurance premium rates, what affect will a higher interest rate assumption have on the premium rate?
Premiums will be lower. Because All other factors being equal, a higher interest rate assumption will result in a lower premium rate.
Stephanie is a policyowner who pays premiums monthly. How does her insurer cover the cost of sending her more frequent premium notices?
The insurer charges higher premiums. Because For policyowners who do not want to pay premiums annually, insurance companies increase the premium to account for lost interest and additional insurer costs.
Carl is a policyowner who prefers to pay premiums monthly rather than annually. How will Carl's insurance company adjust his premium to accommodate this request?
The insurer divides the annual premium by 12 and then adds a modest charge. Because For policyowners who do not want to pay premiums annually, insurance companies increase the annual premium to account for lost interest and additional insurer costs.
All the following statements about the net premium for a traditional life insurance policy are correct EXCEPT:
The net single premium for a traditional life insurance policy is the amount actually charged to the policyowner who wants to purchase the policy with a single premium payment. Because The net single premium is determined on the basis of mortality and interest. An expense load is added to create the gross premium charged to the policyowner.
Which of the following most accurately describes the basic function of a life insurance policy's net premium?
The net single premium is the amount required to cover the policy's promised benefits, without accounting for the insurer's policy-related expenses. Because The net single premium is the theoretical amount, excluding the load factor, which would be needed to fund the face amount for the duration of the policy with a single premium payment. An expense load is than added to produce the gross premium actually paid by the policyowner.
All the following statements regarding life insurance level premiums are correct EXCEPT:
The owner of a whole life policy may elect to let the insurer raise premiums over time, resulting in a lower initial premium than would be the case with a level premium policy. Because In a level premium payment plan, the premium is set and remains fixed over the policy's term.
Which one of the following best describes a "level premium" payment plan?
The policyowner pays the same amount each time the premium is due for the full duration of the premium-paying period. Because Under a level premium payment plan, the policyowner pays the same premium amount each time it is due for the full duration of the premium paying period, possibly to age 120 with a straight whole life policy.
Alice wants to spread her life insurance premiums over the year, rather than pay a single annual premium. She asks her agent what that would mean in terms of the sum of premiums paid. Which of the following is the correct response?
The sum of premiums will be higher than if she paid a single annual premium. Because Paying more frequently than once a year results in higher annual premiums to account for lost interest and additional insurer costs.
All of the following statements regarding life insurance premium modes are correct EXCEPT:
There is no additional cost for paying premiums more frequently than annually. Because For premium modes other than annual, insurance companies add a modest cost to the gross annual premium to reflect lost interest and increased administrative costs.
How do actuaries compensate for the cost of running the business when determining the gross premium charged to the policyowner?
They add an expense load, which includes a safety margin factor, to the net premium to produce the gross premium. Because Actuaries add an expense factor (also called a load factor) to the net premium to produce the gross premium. Providing a safety margin to overcome mortality uncertainty is a key objective for the load.
In setting premiums for a new policy, when do actuaries assume those premiums will be paid?
They will be paid in full at the beginning of the policy year. Because
All the following statements regarding the interest factor in life insurance premium calculations are correct EXCEPT:
To maximize the interest factor, insurers invest all traditional life insurance policy premiums in investment subaccounts. Because Variable insurance premiums are invested in subaccounts. Traditional life premiums are invested in conservative interest-bearing investments held in the insurer's general account.
Which of the following statements generally guides insurance companies in determining "loading"?
Total loading from all policies should cover total operating costs, provide a safety margin, and contribute to profits or surplus. Because Total loading from all policies should cover total operating costs, provide a safety margin, and contribute to profits or surplus.
Which of the following is the actuary's first step in determining the premium charged for a policy?
calculate the net premium Because The actuary first calculates the net single or net level premium.
An insurance company is developing a new product. Which of the following is the actuaries' most important responsibility?
determining the basic premium rates for the new product Because The actuaries' most important input in the process is determining the premium rate.
Which of the following do variable life insurance premiums generally include to cover the cost of managing the investment element of the contract?
maintenance fee Because Variable life insurers charge an annual maintenance fee over the life of the policy.
What do actuaries use to predict the likelihood of an individual dying at any certain age in the premium rate-making process?
mortality Mortality is the element of premium rate-making that reflects the rate of death of prospective insureds.
Actuaries calculate net life insurance premiums based on which of the following?
mortality and interest assumptions Because The net single premium for a traditional life insurance policy reflects two of the premium factors: mortality and interest.
Loading reflects the costs that the insurance company can expect to pay for its operations. These costs include all of the following, EXCEPT:
mortality costs Because Loading reflects an insurance company's cost of operation, excluding mortality costs, which are covered in the mortality charge.
Actuaries base traditional life insurance premiums on all of the following factors, EXCEPT:
sales projections Because Though they try to price the product competitively, actuaries do not base life insurance premium calculations on projected product sales.
