Section 4. Q.4.7 vs Q.4.8

[cipherap15]

Question 4.8 asks what are the advantages and disadvantages to the company of NOT explicitily charging for mortaility in the above contract design? Page 10 Example. Comparing this example to the example on page 8 in section 4, how do we know it's not explicitly charging for mortality and how is the example on page 8 explicitly charging for Mortality charge? I understand the logic of the solution but dont know how to recognize it in the question if mortality is explicitly charged.

In q4.7 which related to the example on page 8, the solution states if the mortality experience gets worse the company might increase its mortality charges.

Why in the example on page 8 can you increase mortality charge but on the page 10 example you can not?

Thanks

 

[Lynn Birchall]

Hi

In the example on page 8 the charges set-out are:
non-allocated premium
£2 (+ inflation) per month
fund management charge = 1% fund value
Cost of life cover to be met by cancelling units monthly.

The one in bold is an explicit mortality charge.

In the example on page 10 the charges are:
non-allocated premium
management charge = 1.5% fund value
Cost of life cover is to be met from the overall product charges above

So here, there is no explicit mortality charge. The cost of life cover is being met from the general product charges.

Thanks
Lynn

 

[cipherap15]

great

That's great.

I totally missed that. Couldn't figure out where to look for the explicit mortality charge.

Thanks kindly.