J
Jesoos
Member
Hi
I would like to know why is there a shortfall on a single premium contract?
Q - The question askes why a regular premium pure endowment assurance contract results in higher financing requirements than a single premium version of the contract, all other things being equal.
A - When a contract is written, a financing requirement results from the shortfall between the premium received and the:
So I understand why the answer is applicable to regular premium contracts, as a large part of the income will only be received after these expenses/provisions.
1. But I am wondering why there is a shortfall if a single premium is received at the start of the contract?
2. Does the pricing not take into account all the expenses including initial expenses?
3. Also, the provisions that need to be established - is this not essentially the same as the expected benefit outgo of the contract discounted into today's terms?
So the single premium should be equal to the expected benefit outgo + expected expense outgo + margin for profit. Should this not technically cover the provisions?
If there is a possibility of a shortfall with a single premium contract, is this contract then not loss-making? If so, when will it make up the shortfall?
Thank you!
I would like to know why is there a shortfall on a single premium contract?
Q - The question askes why a regular premium pure endowment assurance contract results in higher financing requirements than a single premium version of the contract, all other things being equal.
A - When a contract is written, a financing requirement results from the shortfall between the premium received and the:
- initial expenses including commission
- provisions that need to be established in respect of the contract
So I understand why the answer is applicable to regular premium contracts, as a large part of the income will only be received after these expenses/provisions.
1. But I am wondering why there is a shortfall if a single premium is received at the start of the contract?
2. Does the pricing not take into account all the expenses including initial expenses?
3. Also, the provisions that need to be established - is this not essentially the same as the expected benefit outgo of the contract discounted into today's terms?
So the single premium should be equal to the expected benefit outgo + expected expense outgo + margin for profit. Should this not technically cover the provisions?
If there is a possibility of a shortfall with a single premium contract, is this contract then not loss-making? If so, when will it make up the shortfall?
Thank you!
