Q1 (a) in the case, Jim and Rosie live in rented accommodation and he does not have stable source of income. And his wife has never been in full-time employment and has two children. About this type family, I suggested they buy term assurance. In this family the advantage is they are all young and have no house loan. But disadvantage is they are all income stable and have two children. And have uncertainty situation, Rosie has part-work income, and saving are not uncertainty.
b)Term insurance is refers to the period as specified in the insurance contract, if the insured dies or total disability, the insurance company according to the stipulated amount of insurance; if the insurance after the expiration of the term of the insured alive, insurance contract terminates naturally, insurance companies no longer assume insurance responsibility, and does not return the insurance premium. Term insurance has some characteristics, low premium, indemnificatory strong and flexible time limit. (c) Because the Jim’s income not stable, and term insurance is suitable for the low income family. So they can choose term insurance.
Q2 Conditions described according to type cans classification implied and express. Implied included four points as following: 1. Insured has an insurable interest in the life of the subject. 2. The life insured is still alive. 3. In their dealings with one another that both parties have observed the utmost good faith. 4. The life insured can be uniquely identified. Express: general which covers seven points.
1. Protection of insurance company against misrepresentation and fraud. 2. if has alterations will be notified to insurer 3. claims procedures 4. privileges to either party 5. Contribution risk with other insurers. 6. Cancellation clause that will be benefit for the insurer. 7. The insurance company will require insured to do a periodic medical examination. The schedule is the policy of the record details of special insurance contract. The specification is usually used where there is not have enough space to record all details.
If a policy is not record these items, it would be on schedule, “connected to the formation of this policy norms. Endorsements, from time to time, it is necessary to adjust the policy wording to another project insurance amount or alternative change notice. In this case, the new policy will not make. On the contrary, endorsement issued, notice the changes, any additional or return premium involved. Q3. (a) The bonus is the annual assessment of the surplus; the remaining part can be distributed in the bonus. Bonus from the death benefit poor spread profit and fee difference benefits generated by the distributable surplus.
(1) Death benefit poor, is the risk that the insurance company the actual incidence of lower than expected risk rate, the actual death toll caused fewer deaths than predetermined surplus at; (2) Spread profit, is generated by an insurance company actual investment returns higher than the expected investment income surplus at; (3) Fees benefit poor, is generated by an insurance company actual operation management cost is lower than expected earnings management costs. Valuation step:
1. The actuary will determine the mid-market price of the investments relating to each fund and add them together. 2. The actuary will added up all costs then to deduct, and “prospective payment value”, based on premiums already paid and reversionary bonuses already declared. 3. The actuary will determine the prize will be announced, will consider three factors, they are past growth, current state of the fund and future prospects of investment return. 4. Using the computer program, the actuary will be allocated to the annual bonuses to each insured. (b) There are three major types of bonus:
Reversionary bonus is an additional “recovery” premium payment. This is a “return” to the remaining funds insured. This does not mean that the bonus is able to return to the insurance company. All reversionary the bonus is permanently added to the amount of insurance. Terminal bonus while most policy estimation terminal bonus on an annual basis, by calculating the date of claim cannot guarantee the required in advance. Interim bonus, this announcement declares the bonus rate that will apply claim that issue from the last reversionary bonus to the next.
Bonus from the death benefit poor spread profit and fee difference benefits generated by the distributable surplus. (1) Death benefit poor, is the risk that the insurance company the actual incidence of lower than expected risk rate, the actual death toll caused fewer deaths than predetermined surplus at; (2) Spread profit, is generated by an insurance company actual investment returns higher than the expected investment income surplus at; (3) Fees benefit poor, is generated by an insurance company actual operation management cost is lower than expected earnings management costs.