Hello, We know that term reserve is very low hence related investment income is low as well. In hindsight, can someone please supplement to my understanding about why is the reserve very low? 1. There is no guarantee provided to policyholder unlike endowment assurance. Hence, the tpx component or survival benefit is not relevant for term. 2. Compared with whole life , the cashflows are limited to the term of the product, say 10 years, 20 years, 30 years, etc whereas whole life calculates cashflows until the end of modelling period (say age 110) 3. Similar comparison with annuity as whole life, cashflows are for a limited term in term reserve. Thank you!
The reserve for a term assurance is low because there is only a small probability that the benefit will be paid out (= the probability of dying within the defined term). For an endowment assurance or whole life assurance, the probability of the benefit being paid out is 1, so substantial reserves need to be built up that are sufficient to meet that definite benefit payment.
Hi, can you please help me understand how there will be a financial risk from withdrawals at times when reserve is negative? Does it mean to say there is a financial risk from withdrawals at times when 'Asset share' is negative instead of reserve? below is copied from ch 1, pg 5: "There will also be a financial risk from withdrawals at times when the reserve is negative. The risk is exacerbated in the case of decreasing term assurances, since at later durations the cost of future benefits could be considerably less than the level premium being charged. This is mitigated sometimes by limiting the premium-paying term to less than the policy term."
Hi - you might find the following SP2 thread helpful: https://www.acted.co.uk/forums/inde...ance-reserve-vs-asset-share.10398/#post-39315
Term assurance business: only benefit is death, no tax payable. See Chapter 6, bottom of page 5 & top of page 6