Hi,
I had a query in relation to a Chapter 11 practice question:
Q11.7 part (i)
The solution states that
1) lower the initial charge, the more likely the non-unit component will be negative, since on-going renewal charges will need to be higher to compensate.
[ Wouldn't the expected present value of the increase in the renewal charges be same as the decrease in the initial charge, in order to compensate, there by leaving the BEL unaffected ?]
2) non-unit component is more likely to be negative for regular premium policies, since charges are more likely to be taken-up front for a single premium policy.
[I didn't understand the logic behind this. Wouldn't the same logic apply to this as above ?]
Thanks
Last edited by a moderator: Jan 12, 2019