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Embedded option

S

ST6_aspirant

Member
Hi,

What is an embedded option? How is it different from a mortality option to renew a contract?

Thanks!
 
Hi

Whereas mortality options are possible add-ons to a contract, embedded options are an inseparable, intrinsic part of a contract.

They typically occur when there are guarantees, eg the policyholder will receive the bigger of a guaranteed amount and a discretionary amount. This can happen under UL policies and also WP (where the guaranteed amount would be sum assured plus reversionary bonuses and the discretionary amount might relate to asset share).

Considering the embedded options in a contract can be useful in performing market-consistent valuations and risk management, for example.

Hope this helps
Lynn
 
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