Hi
I'll give 1 and 2 a go.
1. I understand it as follows:
With a decreasing term assurance, a level premium is paid for a benefit that reduces over time. Therefore in the earlier years, the cost of benefit will be higher than the premium charged and in the later years the cost of benefit will be lower than the premium charged.
In the earlier years this will therefore mean a larger negative asset share (compared with a level term assurance for example), which exacerbates the risk from financial selection - the premium size isn't enough to cover the cost of benefits.
2. This is generally true because under cwp, reversionary bonuses are added to the sum assured, which is a future amount payable on maturity (eg 25 years from now). With uwp, bonuses are added to a (much smaller) current benefit. Hence the build up of the guarantees is much reduced.
Hope this is helpful, any queries are welcome
Last edited: Aug 17, 2012