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X5 Q3(iii)

A

Alexa

Member
I have a question on Assignment X5 Q3iii - regarding the model answers on Pg 5 of the solutions.

When calculating the premiums for Dur 2 and Dur 3, why do we need to include the probability for non-deaths? Ie

P2 * 0.99 / 1.035 in Dur 2, and
P1 * 0.99^2 / 1.035^2 in Dur 3

I noticed this was not included in the answer for 3(i).

Thanks in advance all.
 
Hi Alexa

We need to allow for survivorship (eg the 0.99 factors) when we're looking beyond the first year. The answer to 3(i) does do this too - for the two-year assurance in 3(i) there's a 0.99 survivorship term in the value of the benefits in year two (to allow for the probability of surviving year 1).

Hope this helps
Lynn
 
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