Chapter 1 section 5.2 The second paragragh says "There will also be a financial risk from withdrawals at times when the reserve is negative". I'm confused. Surely this should say "when the asset share is negative"? The next sentence regarding decreasing term assurances is also puzzling me: "The risk is exacerbated in the case of decreasing term assurances if the cost of benefit exceeds the premium being charged". Surely the benefit always exceeds the premium being charged? If this said "near the end of the policy term the benefit may be small compared to the premium leading to high withdrawals" then it would make some sense to me. Am I just having a bad day or do I completely misunderstand the basics of term assurance? Thanks Selkirk
Hello I don't think there's anything wrong with your understanding of term assurance Yes, it would be absolutely fine to say "when the asset share is negative". I think that's what I'd usually say too, and it's what ST2 says on the matter. So, looking at the life of the policy up to the point of withdrawal, the company has made an actual loss. By saying "when the reserve is negative", we're then looking prospectively. So, a withdrawal when the reserve is negative would result in the loss of an expected future profit stream. Your alternative suggested comment about decreasing term assurance ("near the end of the policy term the benefit may be small compared to the premium leading to high withdrawals") sounds fine to me too. Hope the studying is going well Best regards Lynn
