Hi
1. Very roughly, the method being used here is:
1. Work out the paid-up SA on the original policy (as the policyholder is now "stopping paying premiums on the original policy").
2. Subtract this SA from the "new SA" the policyholder wants after the alteration.
3. The new premium the policyholder should pay is the normal premium that would be charged for this SA (ie for the gap between "new SA" and paid-up SA on the original).
(Step 2 is complicated by the fact that we need to apply assurance factors to the sums assured, rather than just subtract them, if the policy term is being altered.)
A general principle of a good alteration method is that if the alteration is "reduce the outstanding policy term", then the terms for the alteration look sensible when compared with the SV (which is the limiting case ie reducing the outstanding term to 0).
The bullet point you refer to is trying to say that, if we do steps 1 and 2 of the method on the same basis as we calculate SVs, then this principle will be met. If we use some other approach to calculate the paid-up SA, the principle may not be met. For example, if the PUP terms are a lot less generous than the SV terms and a policyholder shortens the outstanding term so that they pay just 1 more premium, they may find that, even with that one extra premium the benefit they get in one year is less than the SV they could have been paid immediately.
(Sorry that ended-up being slightly long-winded
Hope it helps!)
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