Hello. I have a question please regarding exercise 23.1. The solution mentions thay the original premium basis will result in a higher premium being charged for the altered policy than under a brand new contract. Can you please explain why? Also in page 17, it is mentioned that the premium is unchanged, but my understanding is that the premium (altered) is changed by the accumulated value of the difference between the two premiums stated in the method's description Many thanks for your help
The method will result in the premium being (1) whatever the premium should have been at outset for the new higher sum assured (worked out on the original premium basis) + (2) the extra adjustment to repay the accumulated deficit between (1) and the premium the policyholder was actually paying. If the company reduces it premiums rates substantially, then it is likely that the premium for taking out a new policy for the larger sum assured at the alteration date will be smaller because of the more generous premium basis (even though this would normally be bigger than (1) as the policyholder is then older when take out the policy). Your understanding sounds correct here The quote on page 17 is "the premium unchanged if the policy terms are unchanged", ie if you don't alter the policy, you don't alter the premium. Hope these help Lynn
