Evaluate the annual premium under this policy, Financial Management

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Question:

A 10-year deferred life assurance policy with variable benefits is issued to a select life aged 36. The policy provides the following benefits:-

  • Sum assured is initially set at $50,000 and indexed at a rate of 1.9231% p.a;
  • The (indexed) sum assured is payable at the end of the year of death if death occurs after the 10-year deferment period; 
  • If the insured dies within 10 years, all premiums paid will be refunded without interest at the end of year of death.

Premiums are paid annually in advance throughout the life of the policy.

Calculate:-

(a) the annual premium under this policy;
(b) the prospective reserve 7 years after the policy is issued;
(c) the retrospective reserve policy value 7 years after the policy is issued.

Basis: AM92 Select Mortality, 6% p.a interest


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