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IAI Actuarial Core Principles · Actuarial Mathematics for Modelling · Key assurance and annuity contracts

A 10-year term assurance policy issued to a life aged 50 pays Rs 5,00,000 at the end of the year of death. Given A(50:10) endowment assurance factor = 0.6800 and the 10-year pure endowment factor = 0.5900 (both at the same rate of interest and mortality), what is the expected present value of the benefit?

The term assurance factor is the endowment factor less the pure endowment factor, 0.68 - 0.59 = 0.09. Multiplying by the sum assured of Rs 5,00,000 gives an expected present value of Rs 45,000.00.

  1. ARs 45,000.00Correct
  2. BRs 3,40,000.00
  3. CRs 2,95,000.00
  4. DRs 6,34,000.00
  5. Rs 4,50,000.00

Explanation

Term assurance factor = endowment factor minus pure endowment factor = 0.6800 - 0.5900 = 0.0900. Expected present value = 5,00,000 x 0.09 = Rs 45,000. Option 1 wrongly uses the endowment factor, and option 2 uses the pure endowment factor.

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