Mathematical Basis of Life Assurance — Mock Tests & Exam Prep

Answer: E. Interest & Mortality

The calculation of net premium is based on the rate of mortality likely to be experienced by lives to be insured and rate of interest likely to be realised by the Insurer.

Answer: D. All of the above

Whole life contracts can be structured either as "with profit" policies (where the policyholder shares in the insurer's surplus through bonuses) or as "without profit" policies (a fixed guaranteed sum assured with no bonus participation), and both structures are legitimate variants of whole life insurance. Since whole life is not restricted to only one of these structures, "All of the above" is correct.

Answer: A. Uncertain

In insurance, the risk is typically uncertain, because it involves the possibility of events occurring that are not guaranteed to happen. Insurance is built around managing this uncertainty by pooling resources from many policyholders to cover potential losses from events like accidents, illness, death, or property damage. :

Answer: B. Mortality risk arises when the actual experienced mortality becomes more favourable compared to what is assumed in the model

The risk associated with mortality risk is that the actual experienced mortality turns out to be more adverse than assumed in the models. It is important to note the possible reasons why the actual mortality may be different from that assumed while carrying out various investigations. The risk may arise because of the model used to estimate the mortality itself is not representative of the future trends. Even if the model is correct the parameter used may not correspond to the group of lives to be insured and hence the actual mortality experienced may be more adverse than assumed in the model. The quality of data being used has an impact on the parameter being used and thus the complete and accurate data may reduce the parameter risk.

Answer: D. The policyholder’s age as at the date of valuation

For carrying out the valuation, the insurer compiles the requisite data in respect of all the policies which are in force on the valuation date. Prior to the advent of computers and microprocessors, policy servicing was done with the help of Unit Record (Punched Card) equipments. After preparation of the relevant schedules for each group with details such as sum assured, vested bonus, annual premium, outstanding premium, etc., the valuation liability was obtained separately for each group. The results for all the groups were aggregated for deciding the amount of bonus to be allocated and also for preparation of the statutory returns. This process used to take a considerable time.