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SP2, ch4, qus4.4

Discussion in 'SP2' started by Bharti Singla, Nov 27, 2020.

  1. Bharti Singla

    Bharti Singla Senior Member

    Hi All,
    In qus. 4.4, part (I) asks the risks avoided by the investor in opting for product a. So, I am assuming we need to compare it with products b and c and list the risks these two products have but product a doesn't.

    I understood the investment risk part.
    But why it is mentioned that "there is no risk of premium changing". Because the premium will be fixed in product b and c also. Then how this risk is avoided in opting product a over b&c?

    And the second thing is, "any changes in health will have no effect on either the premium or benefit"!
    What if the investor's health become worse and if he die before maturity, the benefit will not be payable. Then how this risk is avoided?
     
    Bharti Singla, Nov 27, 2020
    #1
  2. Mark Willder

    Mark Willder ActEd Tutor Staff Member

    Hi Bharti

    Parts (i) and (ii) look at contract (a) alone, so there is no need to make reference to any features of contracts (b) or (c) at this stage. Part (iii) then looks at the additional risks avoided and accepted compared to contact (a) - so it is only at this point where we need to make a comparison.

    Any changes in health have no impact on the benefits in contract (a). Even if the policyholder's health gets worse, the benefits remain at 60,000 on survival and nothing on death.

    Best wishes

    Mark
     
    Mark Willder, Nov 27, 2020
    #2
  3. Bharti Singla

    Bharti Singla Senior Member

    Hi Mark,

    I appreciate the quick response. If the part(I) has nothing to do with product b and c, then it is fine with premium changing part.
    But I still didn't get the if the policyholder die earlier, before maturity (because of health become worse) then there will not be any survival benefit on maturity. Could you please clarify where I am wrong?
     
    Bharti Singla, Nov 27, 2020
    #3
  4. Varsha Agarwal

    Varsha Agarwal Very Active Member

    Because when we read the question we have to keep all the product features of given category in mind while answering.
    Here with profit Endowment assurance if you see in chap 1,includes accumulating with profit product too..Where bonus are discretionary and premiums impact benefits.
    Also for ULIP in chap 4 we have features of ULIp as flexibility in terms of design and range of benefits offered.

    So here product mentioned for investors needs are not customized and overall broad sub headings where we need to differentiate features of them.

    This is my understanding.
     
    Varsha Agarwal, Nov 27, 2020
    #4
  5. Mark Willder

    Mark Willder ActEd Tutor Staff Member

    Hi Bharti

    When we say "changes in health", we mean changing from being very healthy to being ill with a particular disease say. For this contract, it doesn't matter whether the policyholder falls ill, the premium and benefits remain the same. I think when we talk about someone's health, it is implicit that they are still alive.

    Contrast this with a policy with reviewable premiums where the insurer could change the premiums at the annual renewal date (rather like my motor insurance). In this case the premium or benefit could be changed by the insurer to reflect the latest information about the policyholder's health. So they might increase the premium / reduce the benefit for a term assurance if the policyholder's health had got worse over the last year (for a pure endowment the premiums might go down or the benefit might go up).

    Best wishes

    Mark
     
    Mark Willder, Nov 27, 2020
    #5
    Bharti Singla and Varsha Agarwal like this.
  6. Bharti Singla

    Bharti Singla Senior Member

    Now it makes sense. Thanks Mark!
     
    Bharti Singla, Nov 27, 2020
    #6

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