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Inception/Disabled life annuity

Rashi Gupta

Keen member
I have a question on the computation of premium under IP product!

To compute the premium for IP product, we follow the methodology of Inception/Disabled life annuity where
Cost of claim=claim inception rate*claim eligibility probability* disability annuity * discount factor * annual benefit amount

According to this, I infer that
claim inception rate = Proportion of people suffered illness/accident
claim eligibility probability = Proportion of People who fits into eligibility criteria
disability annuity = income received during the claim period which is post claim income
discount factor = applied on the future income
annual benefit amount =?

Can you tell me what does Disability annuity and annual benefit amount means in this equation?

And just a general question on IP pricing, If Inception/Disabled life annuity approach does not take account of recovery (or make no distinction about recovery or death),
then which approach is being used in reality?
because as per core reading, the multi-state modelling is also considered complex and the above method has its own limitations.
 
I have a question on the computation of premium under IP product!

To compute the premium for IP product, we follow the methodology of Inception/Disabled life annuity where
Cost of claim=claim inception rate*claim eligibility probability* disability annuity * discount factor * annual benefit amount

According to this, I infer that
claim inception rate = Proportion of people suffered illness/accident
claim eligibility probability = Proportion of People who fits into eligibility criteria
disability annuity = income received during the claim period which is post claim income
discount factor = applied on the future income
annual benefit amount =?

Can you tell me what does Disability annuity and annual benefit amount means in this equation?

And just a general question on IP pricing, If Inception/Disabled life annuity approach does not take account of recovery (or make no distinction about recovery or death),
then which approach is being used in reality?
because as per core reading, the multi-state modelling is also considered complex and the above method has its own limitations.
Hi Rashi
The disability annuity factor you discuss above is similar to the a_x factors in the Yellow Tables. So it is the present value of an annuity of 1 per annum. However, unlike the annuities in the Yellow Tables, the disability factor applies to someone who is sick (and so claiming on IP). Also the annuity factor has been calculated to allow for the period of the claim, allowing for death, recovery and the benefit stopping at the end of the term (whichever of these comes first).

The annual benefit amount in this equation is the benefit that the policyholder would receive while sick. So if the monthly benefit is 1000, then the annual benefit is 12000.

Best wishes

Mark
 
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