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IAI Actuarial Core Principles · Actuarial Mathematics for Modelling · Death strain at risk, expected and actual death strain, mortality profit

Which statement about the death strain at risk for a policy with death benefit paid at the end of the year of death is correct?

The death strain at risk is the death benefit less the end-of-year reserve that would be held for a survivor. This is the extra amount the insurer must find because the reserve is released on death, so it is not simply the sum assured.

  1. AIt is the death benefit minus the reserve at the start of the year
  2. BIt is the death benefit minus the reserve at the end of the year held for a surviving policyholderCorrect
  3. CIt is the death benefit plus the end-of-year reserve for a survivor
  4. DIt is always equal to the sum assured
  5. It is the premium minus expected claims

Explanation

On death the insurer pays the benefit but no longer needs to hold the survivor's end-of-year reserve, so the net extra cost is benefit minus that reserve. It equals the sum assured only when the reserve is zero, and it does not use the opening reserve.

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