I think I am missing something. I would like clarification on the second assumption, as to what exactly is being talked about and why? i.e. on that mortality experience of those taking up the option will be the ultimate experience corresponding to select mortality if underwriting was being done, in the premium pricing basis
To price a contract with a mortality option we will need an assumption for the mortality of those that take up the option and those that don't take the option (but just continue with the standard policy). We believe that the option takers will have heavier mortality, and the non-takers will have lighter mortality. One assumption we could make is that the mortality of the non-takers is select, because they were underwritten at the start of he contract. However, the select period in the tables used in the exam is only two years, so any calculations we do for these people after two years will be on ultimate rates. I hope this helps to make sense of the Core Reading. Best wishes Mark
