Question:
Why might additional reserves be required towards the end of the contract?
Answer:
Higher reserves towards the end of the contract
By the time the contract comes to the renewal date, the company must have sufficient reserves available to pay for the additional cost of the higher future mortality experience of those policyholders who exercise the renewal option. The company should be able to pay for these reserves from the premium loadings that have been received in the premiums of the original policy.
Can you please explain to me how the reserving will work on the original policy and after renewal?
Will reserves be held from the start and build up to the high reserve towards the end of the policy or does the company hold additional reserves towards the end of the policy using past premiums?
I'm not sure I understand how the premium loadings and reserving would work
Why might additional reserves be required towards the end of the contract?
Answer:
Higher reserves towards the end of the contract
By the time the contract comes to the renewal date, the company must have sufficient reserves available to pay for the additional cost of the higher future mortality experience of those policyholders who exercise the renewal option. The company should be able to pay for these reserves from the premium loadings that have been received in the premiums of the original policy.
Can you please explain to me how the reserving will work on the original policy and after renewal?
Will reserves be held from the start and build up to the high reserve towards the end of the policy or does the company hold additional reserves towards the end of the policy using past premiums?
I'm not sure I understand how the premium loadings and reserving would work