CM1-21: page 25 example question

[yuli2513]

I do not fully understand why the state that only the male is alive is expected to have the largest reserve: The sum assured for the first death is 100,000 and that for the second death is 50,000. In this case, shouldn't the state that both lives are alive have the largest reserve? Because if we use the same argument that male is expecting shorter life than female, then with both lives alive, we are expected to pay a higher payout amount than the state that we only have the male live alive.

 

[Joe Hook]

Hi,

The question and solution on page 25 are standalone and not related to the question that has gone before or comes after. It relates to a last survivor assurance, ie one that pays out on the second death. In this case, if the female were to die it essentially becomes a single life policy for a male and that is likely to pay out sooner and so we expect the EPV of the benefit to increase, the EPV of the premiums to decrease and so the reserve to go up.

If it were a joint life policy then I agree we could not make that conclusion.

Hope that helps.
Joe

 

[yuli2513]

Hi,

The question and solution on page 25 are standalone and not related to the question that has gone before or comes after. It relates to a last survivor assurance, ie one that pays out on the second death. In this case, if the female were to die it essentially becomes a single life policy for a male and that is likely to pay out sooner and so we expect the EPV of the benefit to increase, the EPV of the premiums to decrease and so the reserve to go up.

If it were a joint life policy then I agree we could not make that conclusion.

Hope that helps.
Joe

Hi Joe, sorry for the late reply. Thank you very much for the explanation, I see I indeed made a mistake by relating this question to the texts before it. Now I fully understand the answer. Thank you very much for your help on this!