Hi, Ref: CMP, Ch12, p.6 Is the contract boundary only to the point at which the insurance company can terminate/change the premium? I thought it was until any point at which the contact can be terminated, including policyholder actions?
Hi: as stated in the Core Reading, the contract boundary is the point at which a company can unilaterally terminate the contract, refuse to accept a premium or change the premiums or benefits in such a way that they fully reflect the risks. That is, the point at which the company can do any of this without the policyholder's consent. If it was defined as being the point at which it could be discontinued by the policyholder, then this would mean that no future premiums would ever be able to be taken into account in the BEL, as the policyholder always has the ability to choose not to pay a premium.
Yeah that's what I assumed. So unless premium is reviewable, the contract boundary is the maturity date, yes? Also, do index-linked premiums count as reviewable in this context?
Broadly speaking, yes - the contract boundary is normally the maturity or expiry date (provided premiums/charges are not reviewable). Index-linked premiums would not count as meeting the definition (as given in the Core Reading) because the company is constrained to increase them only in accordance with the specified index, and so cannot "change the premiums or benefits in such a way that they fully reflect the risks". Hence index-linked premiums would not trigger an early contract boundary. You might find the following thread useful also: https://www.acted.co.uk/forums/index.php?threads/contract-boundaries.13858/
Perfect - thank you! (and for the other thread - that was useful too as hadn't noticed the fact that if single premium, it's obviously not relevant)
Actually one final thing on this point - could you please provide an example of a policy that can be unilaterally terminated by the insurer? Online I can only find examples relating to car insurance (one example of household).
In the UK life insurance policies cannot be unilaterally terminated by the insurance company - this applies more to general insurance business and to life insurance sold in other EU countries (where it may be possible to terminate a life insurance contract on delayed payment of a premium). In the UK, life insurance contracts can be terminated by the insurance company if there has been deliberate misrepresentation, as described in Chapter 4 - but this would not be something that would affect the contract boundaries assessment.
What will be the CB for the following example Unit linked policy with 10 year regular premium of say 100; out of which 20 is required to meet the expenses( including cost of insurance and other expenses) and remaining 80 could be invested in a fund. Now if premium is not paid in future than it will remain inforce until fund meets the non linked expenses. So in this scenario whether we should take no premium projection for BEL calculations or shall take premium projections up to the extent it covers future cost of insurance cost(eg 20 for all 10 years, assuming mortality cost and other expenses remains constant for all future years).
