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Ch9, Qus. 9.4

B

Bharti Singla

Senior Member
Hi All,

I didn't clearly understand why there will be lighter withdrawals and lighter mortality than expected if the company changes from paying high initial commission to paying lower rate of level commission throughout the policy term?

Could anyone please explain?
 
Uniform level of commission rates will make sales forces to make more effort towards keeping policies persistent.
Hence lighter withdrawal.
Also better persistency lowers the risk of selective withdrawal and it's impact on mortality of continuing policy holders.
 
Varsha Agarwal said:
Uniform level of commission rates will make sales forces to make more effort towards keeping policies persistent.
Hence lighter withdrawal.
Also better persistency lowers the risk of selective withdrawal and it's impact on mortality of continuing policy holders.
Click to expand...
Hi Bharti

The solution does not say that there will be lighter mortality and withdrawals. Instead it says that there is a risk of paying more commission than expected if mortality and withdrawals are light.

However, I agree with Varsha that the salesforce will be encouraged to improve persistency and this will reduce selective withdrawls too.

Best wishes

Mark
 
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