x=40 purchases an endowment assurance policy where Sum Assured(SA) on survival at age 60 is 20000 and benefit payable on death during term is 10000.Death benefits payable at end of the year of death. EPV and Var=? using i=4%pa and AM92 select I didn't understand the solution too well. Could anyone please explain this from start to finish? thank you
Sure,Em. In EPV , only 10K pounds,ie,death benefit is being used(and I was adding both survival and death benefits when calculating EPV) whereas for EPV^2,both survival and death benefit amounts are being used and in final ans of finding variance,EPV of only the death benefit is squared. These are the things I didn't understand.
Hi Tina Let me try and explain: To calculate such a plan, we can either sum: an endowment of 10,000 and a pure endowment of 10,000. So 10,000 will be paid on death or survival (endowment) plus another 10,000 on survival (pure endowment). Therefore if life survived they would get 20,000 and if life died they would receive 10,000. This is what was used for working out the EPV. Or a term assurance of 10,000 and a pure endowment of 20,000. This is what has been used to work out the variance. Both will get the same result, ie 10,000 paid on death within the 20 years and 20,000 paid on survival of the 20 years. Does this makes sense? Thanks Em
