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

A life office issues a 20-year pure endowment policy to a life aged 40 with a sum assured of Rs 10,00,000 payable only if the policyholder survives to the end of the term. Which statement about the benefit is correct?

A pure endowment pays Rs 10,00,000 only if the policyholder is alive at the end of 20 years. If death occurs earlier, nothing is paid. This distinguishes it from term assurance, which pays on death, and from endowment assurance, which pays on both death and survival.

  1. ARs 10,00,000 is paid at the end of the year of death if death occurs within 20 years
  2. BRs 10,00,000 is paid at the end of 20 years only if the life is then alive, and nothing is paid on earlier deathCorrect
  3. CRs 10,00,000 is paid on survival and the premiums are returned on death
  4. DRs 10,00,000 is paid on death at any time, whether within or after 20 years
  5. Rs 10,00,000 is paid in instalments throughout the 20 years while the life survives

Explanation

A pure endowment pays the sum assured only on survival to the end of the term. No benefit is payable on earlier death. Option 0 describes a term assurance, and option 3 describes a whole life assurance.

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