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Mistake? April 2010 Question 4

D

Dona169

Member
The answer on page 84 of the revision booklet for the single premium is £137.38.
Surely that can't be right? For an increasing term assurance starting at £10,000 +£100 each policy year.

I've used the formula below:
P= 9900A1[50]:5] +100(IA)1[50]:5]
and got P approx=8150.06

What's going wrong here? Thanks!
 
I can't really tell what's going wrong, because I can't see how you've calculated your numbers. But the formula you have used is correct (and is the same one as used in the solutions - which is also correct).
But the very small value is quite reasonable. A term assurance only pays out on death. The probability of a select 50-year old dying in 5 years is very small, eg around 1.5%. So with an average sum assured of 10250 this would be an approximate EPV of 10250 x 0.015 x 1.04^(-3) = 137. So the answer is correct. I can only assume you have used the wrong formulae for your assurance factors. Check that you haven't used endowment assurances (ie including survival benefits).
Robert
 
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