doubt about Q4.3 from QA Part 4

[justarrived]

Hi All - I have some doubts about solution for Q4.3 from QA bank part 4. I came up with a different explanation of the term assurance bit. Please could a tutor/anyone else review it and tell me if my version is more clear? or am I missing something here??

the Q asked to write a letter explaining why term assurance premium is higher for husband than wife and sickness insurance premium lower for husband than wife.

Here is my version -
"Our term insurance policy is designed to pay the sum assured if the policyholder dies during the term of the policy. Premiums therefore reflect the size of the sum assured and how likely the person is to die during the term. This likelihood of death during the term is determined for a group of individuals of the same age, gender and health conditions, adjusted for the individual’s specific condition. Mortality statistics show that women are expected to live longer than men of the same age and health condition. So for a given term, life insurance company is more likely to pay the sum assured on a term assurance policy issued to men than on a similar policy issued to women. As a result the term insurance premium for men is more than that for women. This is why your term insurance premium is more than that for your wife even if you both are the same age."

Acted version for reference -
"In the case of a term assurance policy, the premium rate is calculated by looking at the
likelihood of the policyholder dying. In simple terms, the more likely that the
policyholder is to die, the higher the premium. The data available (based on national
statistics and our own experience) shows that the older you are, the more likely that you
are to die. Not surprisingly, insurers charge higher premiums for older policyholders.
This data also shows that women are less likely to die than men, so we charge higher
term assurance premiums to males than to females of the same age."

Another doubt - in the sickness insurance part, drawing from my own experience, I see female sickness rates lower than for males. This is specific to the medicaid (US) population that I work on, so I am not sure if I should have used this info in answering the Q. In general, what should one do if the info in the q, conflicts with one's own work experience?

Thanks in advance for replies.

 

[Muppet]

Think I prefer the ActEd version but not studied in detail.
I might be splitting hairs, but the likelihood of death is more important that the expected future lifetime.

It's possible (although we know it's not true) that if males are expected to live to 75 say and females to 80, then they could have similar mortality rates during the term of the contract but then males deteriorate more quickly later in life.

 

[rhoda]

hi justarrived

to answer your queries - the acted answer is better because:

1) it has less jargon

If you compare your answer to acted's you can pick up more jargon (or statistical terms) in yours - this is an absolute no-no in this exam.

2) it is 'technically' more correct - i.e. females have longer life expectancy is a result of the fact that at earlier ages they have lower death rates than male of same age. term assurance premiums are dependent on the latter probability - a point which you need to spell out.

******

To counter the jargon problem you need to reverse role and be the policyholder who is reading the letter - he wants explanation to his query - not a statistical lesson.

He query ---> why at same age (he and his wife) the charges for term life and sickness are not what he expects.

What he expects ---> those 2 policies both deal with similar things (afterall sickness and death are rather similar phenomena to lay people) - so why male and female charges would be reversed for them?

This is the crux of his query. You need to deal with this in the simplest manner.

Now you list out your reasoning:

i) at the policyholder age - male death rate is higher than female.

ii) for sickness this is reverse. (in this exam just believe what the exam question tells u becoz their population sample might be different from those you encounter at work).

So use the clearest layman terms to explain above 2 points ( i & ii).

********

With hindsight and practice you will soon be there.