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IAI Actuarial Core Principles · Business Economics · How competitive markets operate

Which one of the following events would cause the market demand curve for term life insurance policies in India to shift to the right?

A rise in household incomes shifts demand for term life insurance to the right if it is a normal good, because people buy more at every price. Premium changes cause movements along the curve, while insurer numbers and reinsurance costs affect supply instead.

  1. AA fall in the premium rate charged per Rs 1 lakh of cover
  2. BA rise in household incomes, assuming term insurance is a normal goodCorrect
  3. CA rise in the number of insurers selling term policies
  4. DA fall in the cost of reinsurance for insurers
  5. A rise in the premium rate charged per Rs 1 lakh of cover

Explanation

Higher income raises demand for a normal good at every price, shifting the demand curve right. A fall in premium only moves along the curve. More insurers and cheaper reinsurance are supply-side factors, shifting supply. A premium rise causes a movement up the curve.

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