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Increase in sum at risk

M

MindFull

Ton up Member
Hello,

In the Core Reading for Alterations, it states that if the term for an endowment is increased, the premium would decrease which would increase the sum at risk in the short term. I was just wondering why we expect the reserve to reduce with the increase in term. Is the reduction in premium more important?

Thanks much.
 
JamaicanJem said:
Hello,

In the Core Reading for Alterations, it states that if the term for an endowment is increased, the premium would decrease which would increase the sum at risk in the short term. I was just wondering why we expect the reserve to reduce with the increase in term. Is the reduction in premium more important?

Thanks much.
Click to expand...
Hello

If we extend the term we need a smaller premium to reach the same sum assured as there is more time for the assets to grow to reach the sum assured. Similarly the reserves grow more slowly as they too have more time to reach the sum assured. Alternatively we can say that the reserves grow more slowly because there are smaller premiums coming in.

Best wishes

Mark
 
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