research on life insurance

8/19/2019 Research on Life Insurance

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A Research on

Life Insurance and Bangladesh

Submitted to

Mrs. Sabnam Jahan

Assistant Professor

Department of Management

University of Dhaka

Prepared by

Udit Deb Chowdhury

18th Batch

Department of Management

University of Dhaka


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Introduction

Insurance is a financial arrangement for redistributing the costs of unexpected losses through a legal

contract whereby an insurer agrees to compensate an insured for losses. Among various insurances life

insurance plays a very important role as the life is the most important property of the society or

individual. Life Insurance is different from other insurances in the sense that, here, the subject matter of

insurance is the life of human being. The insurance is not only a protection to the family at thepremature death but is a sort of investment because a certain sum of money which is called premium is

returnable to the insured at the death or at the expiry of certain period. The expanding scope of Life

Insurance highlights the growing importance of insurance to individuals. A proper appreciation of what

Life Insurance is and what it can do to help an individual is therefore necessary.

Origin

This report entitled “Life Insurance” has been prepared for Ms. Sabnam Jahan, Course Instructor of

Insuraqnce and Risk Management, as a partial requirement of the above mentioned course. .This report

has been submitted on January 2, 2013. The standard procedure for the long, formal report is followed

here as part of the instruction of the course instructor.

Scopes and Objectives:

The overall life Insurance senario of Bangladesh is the scope for our report.

Our objective of the report is to illustrate a well scanned senario of Life Insurance.

Methodology

In making this report we have to access different source of published data and information. We have

collected information from many secondary data that are published in different journals and magazines.

We brouse various websites to collect relevent articals circulated on online sites. We have also gather

information from variety of texts and periodicals of different organizations.


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TABLE OF CONTENT

CHAPTER-1 ---------------------------------------------------------------------------------------------------------- 12

LIFE INSURANCE ---------------------------------------------------------------------------------------------------- 12

HISTORY OF LIFE INSURANCE ------------------------------------------------------------------------------------ 12

WHY TO HAVE A LIFE INSURANCE? ----------------------------------------------------------------------------- 13

FEATURES OF LIFE INSURANCE: ---------------------------------------------------------------------------------- 14

Nature of General Contract --------------------------------------------------------------------------------------------------------------------------------- 14 Aggreement: ---------------------------------------------------------------------------------------------------------------------------------- 14

Competency of the parties: --------------------------------------------------------------------------------------------------------------- 14

Free consent of the parties:--------------------------------------------------------------------------------------------------------------- 14

Legal consideration: ------------------------------------------------------------------------------------------------------------------------- 14

Legal objective: ------------------------------------------------------------------------------------------------------------------------------- 14

Insurable Interest --------------------------------------------------------------------------------------------------------------------------------------------- 14

Utmost good faith --------------------------------------------------------------------------------------------------------------------------------------------- 15

Facts required to be disclosed: ----------------------------------------------------------------------------------------------------------- 15

Facts not required to be disclosed: ----------------------------------------------------------------------------------------------------- 16

Warranties ------------------------------------------------------------------------------------------------------------------------------------------------------ 16

Informative warranties --------------------------------------------------------------------------------------------------------------------- 16

Promissory warranties --------------------------------------------------------------------------------------------------------------------- 16

Proximate cause ----------------------------------------------------------------------------------------------------------------------------------------------- 16

Assignment and nomination ------------------------------------------------------------------------------------------------------------------------------- 16

Assignment: ----------------------------------------------------------------------------------------------------------------------------------- 16

Nomination: ----------------------------------------------------------------------------------------------------------------------------------- 17

Return of premium ------------------------------------------------------------------------------------------------------------------------------------------- 17

Other feature --------------------------------------------------------------------------------------------------------------------------------------------------- 17

CHAPTER-2 ------------------------------------------------------------------------------------------------------- 18

CLASSIFICATION OF LIFE INSURANCE POLICY ----------------------------------------------------------------- 18


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POLICIES ACCORDING TO DURATION OF POLICIES ----------------------------------------------------------- 19

Whole-life insurance policies ------------------------------------------------------------------------------------------------------------------------------ 19

Single premium ------------------------------------------------------------------------------------------------------------------------------- 19

Continuous premium ----------------------------------------------------------------------------------------------------------------------- 19

Limited premium ----------------------------------------------------------------------------------------------------------------------------- 19

Term insurance policy ---------------------------------------------------------------------------------------------------------------------------------------- 20

Temporary term policy --------------------------------------------------------------------------------------------------------------------- 20

Renewable term policy --------------------------------------------------------------------------------------------------------------------- 20

Convertible term policy -------------------------------------------------------------------------------------------------------------------- 20

Endowment policy -------------------------------------------------------------------------------------------------------------------------------------------- 20

POLICIES ACCORDING TO PREMIUM PAYMENTS ------------------------------------------------------------- 21

Single premium policy ---------------------------------------------------------------------------------------------------------------------- 21

Level premium policy ----------------------------------------------------------------------------------------------------------------------- 21

POLICIES ACCORDING TO PARTICIPATION IN PROFITS ------------------------------------------------------ 21

Without profit policies --------------------------------------------------------------------------------------------------------------------- 21

With profit policies -------------------------------------------------------------------------------------------------------------------------- 21

POLICIES ACCORDING TO THE NUMBER OF LIVES COVERED ---------------------------------------------- 22

Single life policy ------------------------------------------------------------------------------------------------------------------------------ 22

Multiple lie policy ---------------------------------------------------------------------------------------------------------------------------- 22

Joint life policy -------------------------------------------------------------------------------------------------------------------------------- 22

Survivorship policy -------------------------------------------------------------------------------------------------------------------------- 22

POLICIES ACCORDING TO THE METHOD OF PAYMENT OF CLAIM AMMOUNT ------------------------- 22

Lump sum amount -------------------------------------------------------------------------------------------------------------------------------------------- 22

Installment or annuity policies ---------------------------------------------------------------------------------------------------------------------------- 22

CHAPTER-3 ---------------------------------------------------------------------------------------------------------- 23

ANNUITIES ----------------------------------------------------------------------------------------------------------- 23

CLASSIFICATION OF ANNUITIES: --------------------------------------------------------------------------------- 23

Annuities According to Commencement of Income: ------------------------------------------------------------------------------------------------ 23

1. Immediate Annuity: ---------------------------------------------------------------------------------------------------------------------- 23

2. Annuity Due: ------------------------------------------------------------------------------------------------------------------------------- 24

3. Deferred Annuity: ------------------------------------------------------------------------------------------------------------------------ 24


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Classification of Annuity According To the Number of Lives: ------------------------------------------------------------------------------------- 25

1. Single Life Annuity: ----------------------------------------------------------------------------------------------------------------------- 25

2. Multiple Life Annuities: ----------------------------------------------------------------------------------------------------------------- 25

Classification of Annuities according to Mode of Premium: --------------------------------------------------------------------------------------- 25

1. Level Premium Annuities: -------------------------------------------------------------------------------------------------------------- 25

2. Single Premium Annuities: ------------------------------------------------------------------------------------------------------------- 25

Classification according to the disposition of Proceeds: -------------------------------------------------------------------------------------------- 25

1. Life Annuity: ------------------------------------------------------------------------------------------------------------------------------- 26

2. Guaranteed Minimum Annuity: ------------------------------------------------------------------------------------------------------ 26

3. Temporary Life Annuity: ---------------------------------------------------------------------------------------------------------------- 27

RETIREMENT ANNUITY POLICY ----------------------------------------------------------------------------------- 27

CHAPTER-4 ---------------------------------------------------------------------------------------------------------- 29

SELECTION OF RISK ------------------------------------------------------------------------------------------------- 29

PURPOSE OF RISK SELECTION ------------------------------------------------------------------------------------ 29

FACTORS AFFECTING RISK ---------------------------------------------------------------------------------------- 30

Age ---------------------------------------------------------------------------------------------------------------------------------------------------------------- 30

Minimum and Maximum limit of the age -------------------------------------------------------------------------------------------------------------- 30

Build -------------------------------------------------------------------------------------------------------------------------------------------------------------- 30

Physical condition --------------------------------------------------------------------------------------------------------------------------------------------- 31

Personal history ----------------------------------------------------------------------------------------------------------------------------------------------- 31

Family History -------------------------------------------------------------------------------------------------------------------------------------------------- 31

Occupation ------------------------------------------------------------------------------------------------------------------------------------------------------ 31

Residence -------------------------------------------------------------------------------------------------------------------------------------------------------- 31

Present Habits -------------------------------------------------------------------------------------------------------------------------------------------------- 31

Morals ------------------------------------------------------------------------------------------------------------------------------------------------------------ 31

Race and Nationality ----------------------------------------------------------------------------------------------------------------------------------------- 31

Sex ----------------------------------------------------------------------------------------------------------------------------------------------------------------- 32


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Economic Status ----------------------------------------------------------------------------------------------------------------------------------------------- 32

Defense Service ------------------------------------------------------------------------------------------------------------------------------------------------ 32

Plan of Insurance ---------------------------------------------------------------------------------------------------------------------------------------------- 32

SOURCES OF RISK INFORMATION ------------------------------------------------------------------------------- 32

The proposal form -------------------------------------------------------------------------------------------------------------------------------------------- 32

Medical Examiner’s Report --------------------------------------------------------------------------------------------------------------------------------- 33

Agent’s Report ------------------------------------------------------------------------------------------------------------------------------------------------- 33

The Inspection Report --------------------------------------------------------------------------------------------------------------------------------------- 33

Private Friend’s Report -------------------------------------------------------------------------------------------------------------------------------------- 33

Attending Physicians ----------------------------------------------------------------------------------------------------------------------------------------- 33

Medical Information Bureau ------------------------------------------------------------------------------------------------------------------------------- 33

Neighbors and Business Associates ---------------------------------------------------------------------------------------------------------------------- 33

Commercial Credit Investigation Bureau --------------------------------------------------------------------------------------------------------------- 34

INSURANCE OF LADIES AND MINORS --------------------------------------------------------------------------- 34

CLASSES OF RISK ---------------------------------------------------------------------------------------------------- 36

Uninsurable Risks: -------------------------------------------------------------------------------------------------------------------------------------------- 36

Insurable Risks: ------------------------------------------------------------------------------------------------------------------------------------------------ 36

Standard Risk --------------------------------------------------------------------------------------------------------------------------------- 36

Sub-Standard Risk --------------------------------------------------------------------------------------------------------------------------- 36

Super-Standard Risk ------------------------------------------------------------------------------------------------------------------------- 36

METHODS OF RISK CLASSIFICATION ---------------------------------------------------------------------------- 36

The Judgment Method --------------------------------------------------------------------------------------------------------------------------------------- 37

Numerical Rating System ----------------------------------------------------------------------------------------------------------------------------------- 37

CHAPTER-5 ---------------------------------------------------------------------------------------------------------- 38

MORTALITY TABLE -------------------------------------------------------------------------------------------------- 38


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FEATURES OF A MORTALIY TABLE ------------------------------------------------------------------------------- 39

Sources of mortality information ------------------------------------------------------------------------------------------------------------------------- 39

Population Statistics: ----------------------------------------------------------------------------------------------------------------------- 39

Records of Insurers: ------------------------------------------------------------------------------------------------------------------------- 39

TYPES OF MORTALITY TABLE ------------------------------------------------------------------------------------- 40

Aggregate table: ----------------------------------------------------------------------------------------------------------------------------------------------- 40

Select Mortality Table: --------------------------------------------------------------------------------------------------------------------------------------- 40

Ultimate Mortality Table: ----------------------------------------------------------------------------------------------------------------------------------- 41

CONSTRUCTION OF MORTALITY TABLE ------------------------------------------------------------------------ 42

CONSTRUCTION OF DEATH RATE -------------------------------------------------------------------------------- 42

Interest Factor ------------------------------------------------------------------------------------------------------------------------------------------------- 43

CHAPTER-6 ---------------------------------------------------------------------------------------------------------- 45

CALCULATION’S ---------------------------------------------------------------------------------------------------- 45

CALCULATION OF PREMIUM ------------------------------------------------------------------------------------- 45

Net Single Premium ----------------------------------------------------------------------------------------------------------------------------------------- 46

Steps for Calculation ----------------------------------------------------------------------------------------------------------------------------------------- 46

Assumptions underlying Rate Computations ---------------------------------------------------------------------------------------------------------- 46

CALCULATION OF NET SINGLE PREMIUM ---------------------------------------------------------------------- 47

Term Insurance: ----------------------------------------------------------------------------------------------------------------------------------------------- 47

Net Single Premium in Whole Life Policies: ------------------------------------------------------------------------------------------------------------ 48

Net Single Premium in Pure Endowment Policy: ----------------------------------------------------------------------------------------------------- 49

Net Single Premium in Ordinary Endowment Policy: ------------------------------------------------------------------------------------------------ 49

Net Single Premium in Double Endowment: ----------------------------------------------------------------------------------------------------------- 49

Net Single Premium for a Joint Life Policy: ------------------------------------------------------------------------------------------------------------- 50


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Net Single Premium for Last Survival Policy:----------------------------------------------------------------------------------------------------------- 50

NET SINGLE PREMIUM IN ANNUITIES -------------------------------------------------------------------------- 50

Net Single Premium in Life Annuity ---------------------------------------------------------------------------------------------------------------------- 51

Net Single Premium for Temporary (Term) Annuity ------------------------------------------------------------------------------------------------- 51

DEFERRED ANNUITY------------------------------------------------------------------------------------------------ 51

Calculation of deferred annuity --------------------------------------------------------------------------------------------------------------------------- 51

Calculation of Level Premiums ----------------------------------------------------------------------------------------------------------------------------- 52

Annuity Due Principle: --------------------------------------------------------------------------------------------------------------------------------------- 52

CALCULATING GROSS PREMIUM -------------------------------------------------------------------------------- 52

Allocation of expense ---------------------------------------------------------------------------------------------------------------------------------------- 53

Classification of Expenses On The Basis Of Variation------------------------------------------------------------------------------------------------ 53

(i) Analysis of Expenses --------------------------------------------------------------------------------------------------------------------- 54

(ii) Determination of Percentage: ------------------------------------------------------------------------------------------------------- 54

METHODS OF LOADING ------------------------------------------------------------------------------------------- 54

1. Constant Addition Loading ------------------------------------------------------------------------------------------------------------------------------ 54

2. Percentage Addition Loading --------------------------------------------------------------------------------------------------------------------------- 55

3. Modified Percentage Method -------------------------------------------------------------------------------------------------------------------------- 55

4. Constant and Percentage Addition Method -------------------------------------------------------------------------------------------------------- 55

THE RESERVE -------------------------------------------------------------------------------------------------------- 55

Sources of reserve -------------------------------------------------------------------------------------------------------------------------------------------- 55

Assessment premium plan ---------------------------------------------------------------------------------------------------------------- 55

Natural Premium Plan ---------------------------------------------------------------------------------------------------------------------- 56

Level premium plan ------------------------------------------------------------------------------------------------------------------------- 56

Nature of policy ------------------------------------------------------------------------------------------------------------------------------------------------ 56

Determining reserve requirements: ---------------------------------------------------------------------------------------------------- 56

Factors Determining Reserve Requirements ----------------------------------------------------------------------------------------- 56

Reserve valuation basis -------------------------------------------------------------------------------------------------------------------- 57


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CHAPTER-7 ----------------------------------------------------------------------------------------------------------- 58

INVESTMENT OF FUNDS------------------------------------------------------------------------------------------- 58

NEEDS OF INVESTMENT ------------------------------------------------------------------------------------------- 58

Payment of claims -------------------------------------------------------------------------------------------------------------------------------------------- 58

To avoid financial deficit ------------------------------------------------------------------------------------------------------------------------------------ 58

National Interest ---------------------------------------------------------------------------------------------------------------------------------------------- 58

SOURCES OF FUND ------------------------------------------------------------------------------------------------- 58

Premium --------------------------------------------------------------------------------------------------------------------------------------------------------- 59

Interest ----------------------------------------------------------------------------------------------------------------------------------------------------------- 59

Capital gain ----------------------------------------------------------------------------------------------------------------------------------------------------- 59

Saving in expense --------------------------------------------------------------------------------------------------------------------------------------------- 59

Non payments of claims ------------------------------------------------------------------------------------------------------------------------------------- 59

THE MAIN PRINCIPLES OF INVESTMENT ----------------------------------------------------------------------- 59

Safety: ------------------------------------------------------------------------------------------------------------------------------------------------------------ 59

Profitability: ---------------------------------------------------------------------------------------------------------------------------------------------------- 60

Liquidity: --------------------------------------------------------------------------------------------------------------------------------------------------------- 60

Diversification: ------------------------------------------------------------------------------------------------------------------------------------------------- 61

Increasing of Life Business: --------------------------------------------------------------------------------------------------------------------------------- 61

CHAPTER-8 ---------------------------------------------------------------------------------------------------------- 62

SURRENDER VALUE ------------------------------------------------------------------------------------------------ 62

HOW TO CALCULATE SURRENDER VALUE? -------------------------------------------------------------------- 62

The Accumulation Approach ------------------------------------------------------------------------------------------------------------------------------- 63

Surrender Charges: ------------------------------------------------------------------------------------------------------------------------------------------- 63

Initial Expenses ------------------------------------------------------------------------------------------------------------------------------- 63


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Adverse Financial Selection --------------------------------------------------------------------------------------------------------------- 64

Adverse Mortality Selection -------------------------------------------------------------------------------------------------------------- 64

Contribution to Contingency Reserve -------------------------------------------------------------------------------------------------- 64

Contribution to Profits --------------------------------------------------------------------------------------------------------------------- 64

Cost of Surrender ---------------------------------------------------------------------------------------------------------------------------- 65

Saving Approach ----------------------------------------------------------------------------------------------------------------------------------------------- 65

FORMS OF PAYMENT OF SURRENDER VALUES --------------------------------------------------------------- 66

Cash Surrender Value ---------------------------------------------------------------------------------------------------------------------------------------- 66

Reduced Paid up Insurance --------------------------------------------------------------------------------------------------------------------------------- 66

Extended Term Insurance ----------------------------------------------------------------------------------------------------------------------------------- 67

Automatic Premium Loan ----------------------------------------------------------------------------------------------------------------------------------- 67

Purchase of Annuity ------------------------------------------------------------------------------------------------------------------------------------------ 68

CHAPTER-9 ----------------------------------------------------------------------------------------------------------- 69

LIFE INSURANCE FOR UNDER-PRIVILEGED --------------------------------------------------------------------- 69

INDUSTRIAL LIFE INSURANCE ------------------------------------------------------------------------------------ 69

GROUP LIFE INSURANCE ------------------------------------------------------------------------------------------ 70

Minimum Number of Persons Insured ------------------------------------------------------------------------------------------------------------------ 70

Eligibility --------------------------------------------------------------------------------------------------------------------------------------------------------- 70

Termination of Employment ------------------------------------------------------------------------------------------------------------------------------- 70

Group Term Insurance Scheme by Corporation ------------------------------------------------------------------------------------------------------- 70

DISABILITY BENEFIT ------------------------------------------------------------------------------------------------ 71

The Nature and Extent --------------------------------------------------------------------------------------------------------------------------------------- 71

Extended Disability Benefit --------------------------------------------------------------------------------------------------------------------------------- 71

Conditions ------------------------------------------------------------------------------------------------------------------------------------------------------- 72

PENSION PLANS ----------------------------------------------------------------------------------------------------- 72


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Benefit on Death during Service -------------------------------------------------------------------------------------------------------------------------- 72

CHAPTER-10 --------------------------------------------------------------------------------------------------------- 73

POLICY CONDITIONS ----------------------------------------------------------------------------------------------- 73

CONDITIONS RELATING TO COMMENCEMENT OF RISK ---------------------------------------------------- 73

Commencement of Risk ------------------------------------------------------------------------------------------------------------------------------------- 73

Proof of Age ---------------------------------------------------------------------------------------------------------------------------------------------------- 73

CONDITIONS OF INSURANCE PREMIUMS ---------------------------------------------------------------------- 74

Payment of Premiums --------------------------------------------------------------------------------------------------------------------------------------- 74

Days of Grace --------------------------------------------------------------------------------------------------------------------------------------------------- 74

Premium Notice ----------------------------------------------------------------------------------------------------------------------------------------------- 75

CONDITIONS RELATING TO THE CONTINUE POLICIES ------------------------------------------------------- 75

Indisputable Clause ------------------------------------------------------------------------------------------------------------------------------------------- 75

Alterations in Policies ---------------------------------------------------------------------------------------------------------------------------------------- 75

Exclusion --------------------------------------------------------------------------------------------------------------------------------------------------------- 75

Lost Policy ------------------------------------------------------------------------------------------------------------------------------------------------------- 76

Loans -------------------------------------------------------------------------------------------------------------------------------------------------------------- 76

Nomination ----------------------------------------------------------------------------------------------------------------------------------------------------- 76

Notice of Nomination ----------------------------------------------------------------------------------------------------------------------- 76

Assignment ----------------------------------------------------------------------------------------------------------------------------------------------------- 77

Suicide ------------------------------------------------------------------------------------------------------------------------------------------------------------ 77

Double Accident Benefit------------------------------------------------------------------------------------------------------------------------------------- 78

Disability Benefit ---------------------------------------------------------------------------------------------------------------------------------------------- 78

Extended Disability Benefit --------------------------------------------------------------------------------------------------------------------------------- 78

LAPSE OF POLICIES ------------------------------------------------------------------------------------------------- 78


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Revival of Lapsed Policies ----------------------------------------------------------------------------------------------------------------------------------- 79

Special Revival Scheme -------------------------------------------------------------------------------------------------------------------------------------- 79

Surrender Value ----------------------------------------------------------------------------------------------------------------------------------------------- 79

Extended Term Insurance ----------------------------------------------------------------------------------------------------------------------------------- 80

Automatic Premium Loan ----------------------------------------------------------------------------------------------------------------------------------- 80

Policy Condition ----------------------------------------------------------------------------------------------------------------------------------------------- 81

Reduced Paid-up Insurance --------------------------------------------------------------------------------------------------------------------------------- 81

CLAIMS CONDITION ------------------------------------------------------------------------------------------------ 81

Settlement of claims ----------------------------------------------------------------------------------------------------------------------------------------- 81

Settlement options ------------------------------------------------------------------------------------------------------------------------------------------- 82

CHAPTER-11 --------------------------------------------------------------------------------------------------------- 83

LIFE INSURANCE IN BANGLADESH ------------------------------------------------------------------------------- 83

CURRENT PATTERN OF INSURANCE IN BANGLADESH ------------------------------------------------------- 83

ROLE OF PRIVATE INSURANCE COMPANIES IN THE ECONOMIC DEVELOPMENT OF BANGLADESH 84

CONCLUSION -------------------------------------------------------------------------------------------------------- 87


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Chapter-1

Life Insurance

Life insurance is a contract between an insured (insurance policy holder) and an insurer, where theinsurer promises to pay a designated beneficiary a sum of money (the "benefits") upon the death of the

insured person. Depending on the contract, other events such as terminal illness or critical illness may

also trigger payment. The policy holder typically pays a premium, either regularly or as a lump sum.

History of life insurance


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Insurance began as a way of reducing the risk to traders, as early as 2000 BC in China and 1750 BC in

Babylon. Life insurance dates to ancient Rome; "burial clubs" covered the cost of members' funeral

expenses and assisted survivors financially.

Modern life insurance originated in 17th century England, originally as insurance for traders.Merchants,

ship owners and underwriters met to discuss deals at Lloyd's Coffee House, predecessor to the famous

Lloyd's of London. The first society to sell life insurance was the Amicable Society for a Perpetual

Assurance Office.

The first insurance company in the United States was formed in Charleston, South Carolina in 1732, but

it provided only fire insurance. The sale of life insurance in the U.S. began in the late 1760s. The

Presbyterian Synods in Philadelphia and New York created the Corporation for Relief of Poor and

Distressed Widows and Children of Presbyterian Ministers in 1759; Episcopalian priests organized a

similar fund in 1769. Between 1787 and 1837 more than two dozen life insurance companies were

started, but fewer than half a dozen survived.Prior to the American Civil War, many insurance

companies in the United States insured the lives of slaves for their owners. In response to bills passed in

California in 2001 and in Illinois in 2003, the companies have been required to search their records for

such policies.

Why to have a Life Insurance?

Anyone can have a life insurance for the following reasons:

Protection

Liquidity

Tax Relief


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Money when you need it.

Features of life Insurance:

Nature of General Contract.

Insurable Interest.

Utmost good faith.

Warranties.

Proximate cause.

Assignment and nomination.

Return of premium.

Other feature.

In life insurance contract the first three feathers are very important while the rest of them are

of complementary in nature. Let’s have an extensive idea about the features:

Nature of General Contract

Insurable Interest

The isured must have an insurable interest in the life to be insured for a valid contract.

Insurable interest arises out of the pecuniary relationship that exists between the policy holder

and the life assured so that the formar stands to loose by the death of the latter or continues to

gain by his survival.If such relationship exists then the former of has insurable interest of the

life of the latter. The loss should be monetary or financial. Mere emotions do not constitute

insurable interest.

Insurable interest in the life insurance may be divided into many categories:

Insurable interest

Insurable interest in own life Insurable interest in other’s life

Proof is not required Proof is required

Bussiness relation Family relation


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General rule of Insurable interest in life insurance:

1. Time of Insurable interest.

2.

Services.

3.

Insurable interest must be valuable.

4.

Insurable interest should be valid.

5. The legal responsibility may be basis of insurable interest.

6. Insurable interest must be definite.

7. Legal consequence.

Utmost good faith

Life insurance requires that the principal of utmost good faithshould be preserved by both the

parties. The utmost good faith says that parties, proposer or insured and insurer must be of the

same mind at the time of contract because only then the risk may be correctly ascertained.

They must make full disclouser of the facts materials to the risk.

Facts required to be disclosed:

Material facts

Material facts are age, income, occupation, health, habit, family history and plan of insurance.

Duty of both parties

Both parties are responsible to disclose all the material facts.

Full and true disclouser

There should be full and true discolser of all the material facts.

Extent of the duty

The duty of discloser finishes at the moment when the proposal form has been fully and

correctl fulfilled provided there are no such facts which he considers or expected to be

considered material and have not been disclosed.

Legal consequence

In the absence of utmost good faith the contract will be voidableat the optionof the person

who suffered loss due to non-disclosure.


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Facts not required to be disclosed:

Circumstances which are diminishing the risk.

Facts which are known or reasonably should be known to the insurer in hisordinary

couse of business.

Facts which the insurer should infer from the information given.]

Facts which are waived by the insurer.

Facts which are superfluous to disclose by reason of a condition or warrenty

Facts of public knowledge

Warranties

Warranties are an intergral part of a contract; these are the bases of the contract between the

proposer and the insurar. The policy issued will contain that the proposal and personal

statement shall form part of the policy and be the basis of the contract. The warranties may be

Informative warranties

The proposer is expected to disclose all the material facts to the best of his knowledge asnd

belief. It is more important.

Promissory warranties

The proposer promises that he will not take up any hazardous occupation and will inform if he

will take the hazardous occupation.

Proximate cause

It is the real and actual cause or effective cause which causes the loss is called proximate cause.

But in life insurance it is not appiled because the insurer is bound to pay the amount of

insurance whatever imay be the reason of death.it may be natural or unnatural. But in the

folowing cases proximate causes are observed in the life insurance too:

1. War-risk.

2. Suicide.

3. Accident Benefits.

Assignment and nomination

Assignment:

The policy in life insurance can be assigned feely for a legal consideration or love and affection.

Once the assignment is completed, it cannot be revoked by the assignorbecause he ceases to

be the owner of the policy unless reassigment is made by the assignee in favour of the assignor.


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Nomination:

The hoder of a policy of life insurance on his own life, nomiante a person or persons to whom

the money secured by the policy shal be paid in the event of his death. A nomination can be

cancelled before maturity, but unless the notice is given of any cancellation to the insurer, the

insurer will not be liable for any bonafide payment to a nominee registered in the records.whenthe policy matures, or if the nominee dies, the sum shall be paid to the plicy-holder or his legal

representatives.

Return of premium

Ordinarily, the premium once paid cannot be refunded. But in the following cases the premium

paid are returnable.

Equity implies a condition that the insurer shall not receive the price of running a risk he

runs.thus, there the contract does not come into effect or it is held to b void ab initio.

For example, on account of misinterpretation or breach of warrenty, the insured, in the

absence of any express condition to the contrary, can claim the returnof any premium paid. But

if the policy runs for a time and becomes void later on, the insured is not entitled to the return

of any part of the premium.

Where the insured is guilty of fraud in obtaining a polic, he will fail in claim to the sum assured.

He cannot also ask for a return of the premiums because he will have to allege his own fraud to

succeed in his claim and no court will asist such person.

Other feature Life Insurance policies have the efollowing additional featurers:

Life Insurance contract is:

1. An aleatory contract,

2. A unilateral contract,

3.

A conditional contract,

4.

A contract of adhesion and

5. Not a contract of indemnity.


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Chapter-2

Classification Of Life Insurance Policy

The life insurance contract provides elements of protection and investment. Life insuranceprovides against pre-mature death and a fixed sum at the maturity of policy. The two elements

of protection and investment exist in various degrees in different types of policies. These

elements will vary according to the different times in the same policy. The older the policy the

lesser the element of protection and higher the element of investment and vice-versa is also

true.

The advantage for the policy owner is "peace of mind", in knowing that the death of the insured

person will not result in financial hardship for loved ones and lenders.

Having different elements in different policies, the policy –holders are free to choose the best

policies according to their requirements. The life insurance policies can be divided on the basis

of:

Duration of policies.

Method of premium payments.

Participation in profit.

Number of lives covered.

Method of payment of claim ammounts.


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Policies According to Duration of policiesThe life insurance policies according to the duration may be:

1. Whole life policy, 2. Term insurance policy and 3. Endowment policy.

Whole-life insurance policies

Whole-life policies are issued for life. It means that the policy amoun will be paid at the death

of the life assured. The life assured, thus, cannot get the policy amount during his life time. Only

his dependents will get the advantages of this policy. The whole life policies can either by

payment of,

Single premium

Single premium is nto very common whereas the limited premium payment is the most popular

form of whole-life policy.

Continuous premium

in continuous premium, the premium is payable up to the life of the policy-holder. This is losing

its importance becuse only the dependents of life assured are getting the benefits.

Limited premium

Premium payable for limited / shorter period or until death if earlier risk coverage throughout

life.


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Convertible whole life policy

This is a whole-life policy, which gives its holder an option to get it convered at the end of five

years, into an endowment policy. If this option is exercised, the policy no longer remains a

whole-life policy, if it is not exercised, the policy continues to be, a whole-life policy.

Term insurance policy

Term life insurance or term assurance is life insurance, which provides coverage at a fixed rate

of payments for a limited period, the relevant term. After that period expires, coverage at the

previous rate of premiums is no longer guaranteed and the client must either forgo coverage or

potentially obtain further coverage with different payments or conditions. If the insured dies

during the term, the death benefit will be paid to the beneficiary. Term insurance is the least

expensive way to purchase a substantial death benefit on a coverage amount per premium

dollar basis over a specific period. Term insurance policies are always without profits. Term insurance

policies are of the following kind:

Temporary term policy

The Corporation issues term insurance for two years, which is also called as two-year temporary

assurance policy. The sum assured will be payable only in the event of the life assured’s death occuring

within two years from the commencement of the policy. A single premium is required to be paid at the

outset. The proposes is required to be pay the medical examination fee.

Renewable term policy

These policies are renewable at the expiry of term for an additional period without medical

examination. But the premium rate will be altered according to the age attained at the time of rnewal.

The policy holder can renew it many times provided the attained age has not crossed 55 years.

Convertible term policy

Under this policy, option to convert it into whole-life policy or endowment policy is available

Endowment policy

An endowment policy is a life insurance contract designed to pay a lump sum after a specifiedterm (on its 'maturity') or on death. Typical maturities are ten, fifteen or twenty years up to a

certain age limit.

The endowment policy can be several of which important endowment policies are discuss

below:


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1.

Pure endowment policy:

2.

Ordinary endowment policy:

3.

Joint life endowment policy:

4. Double endowment policy:

5. Fixed term endowment policy:

6.

Educational annuity policy:7. Triple benefit policy:

Policies According to Premium payments

Policies according to premium payment may be in following types:

Single premium policy

In this policy the whole premium is paid at the beigining of the policy. As compared to the

annunal premium payable, it is costlier. But as compared to aggregate of all annual premiumspayable, it is much smaller because all the premiums are received in advance and the insurer

can earn additional amount on the premiums received.

Level premium policy

Under this policy regular and equal premiums are paid at a definite interval. This premium is

lesser than the single premium and is convenient to make premium at a regular period. This

may take the shape of an expense and can be constantly paid.the equal installment s may be

paid monthly, trimonthleor quarterly, half yearly and yearly. Th epremium is calculated and

charged on annual basis.

Policies According to Participation in profits

Policies according to participation in profits may be

Without profit policies

The holders of without profit policies arve not entitled to share the profits of the insurer. These

policy- hoders get only the sum assured and no bonus is given to them.

With profit policies

The holders of with profit policies are entitled to share the profits of the insurer. Since the

policy holders can share profit and not the loss they cannot be treated as co-ownerof the

insurance company. If there is loss they cannot get the bonus.


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Policies According to the Number of lives covered

On the basis number of persons insured in a policy, the policy may be

Single life policy

In this policy only one individual is insured. The policy amout will be payable only when the

assured event occurs.

Multiple lie policy

In this policy more than one life is insured. It may be a joint life policy or last survivor policy.

Joint life policy

this policy covers two or more lives and the policy amount is payable on the first death. This is

beneficial to partners of a firm and to couple.

Survivorship policy

the polic amount is payable at the last death. So long as any of the insured is alive, no payment

is made.

Policies According to the Method of payment of claim ammount

The policy amount may be paid in:

Lump sum amount

Installment or annuity policies

The policy amount is payablein installments. It is beneicial to those whose earning capabilities

are reduced to minimum in old age. At that time, this policy is more helpful. He may continue to

get up to a fixed period or up to death or both.


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Chapter-3

Annuities

An Annuity is any continuing payment with a fixed total annual amount. A life annuity is afinancial contract in the form of an insurance product according to which a seller (issuer)

typically a financial institution such as a life insurance company makes a series of future

payments to a buyer (annuitant) in exchange for the immediate payment of a lump sum (single-

payment annuity) or a series of regular payments (regular-payment annuity), prior to the onset

of the annuity.

Classification of Annuities:

The annuities can be defined according to:

1.Commencement of income.

2.Number of lives covered.

3.Mode of payment of premium.

4.Disposition of proceeds and

5.Special combination of annuities.

Annuities According to Commencement of Income:

1. Immediate Annuity:

The immediate annuity commences immediately after the end of the first income period. For

instance, if the annuity is to be paid annually, then the first installment will be paid at the expiry


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of one year. Similarly, in half-yearly annuity, the payment will begin at the end of six months.

The annuity can be paid either yearly, half-yearly, quarterly or monthly.

The purchase money (or consideration) is in single amount. Evidence of age is always asked for

at the time of entry. The advantage of this is that with this help, it is possible to obtain a larger

income than can be secured from the yield of investments. The form of contract is of specialinterest to persons without dependents and it provides maximum possible consistent income.

2. Annuity Due:

Under this annuity, the payment of installment starts from the time of contract. The first

payment is made as soon as the contract is finalised. The premium is generally paid in single

amount; but can be paid in installments as is discussed in deferred annuity.

The difference between the annuity due and immediate annuity is that the payment for each

period is paid in its beginning under the annuity due contract while at the end of the period inimmediate annuity contract. The annuity due contract is beneficial for actuarial valuation.

3. Deferred Annuity:

In this annuity contract, the payment of annuity starts after a deferment period or at the

attainment by the annuitant of a specified age. The premium may be paid as a single premium

or in installments. Generally the deferred annuity is sold on level premium.

The payment of premium continues until the stated date for commencement of the

installments or until prior death of the annuitant. At the death, the premium may be returned

without interest.

The deferred annuity can be surrendered for a cash amount (or cash option) at the end of or

before the deferment period. The surrender value is normally 950 per cent of the premiums

paid excluding first premium before deferment period. No surrender value is payable after the

deferment period.

The deferred annuity can be issued to male or female lives. The female lives are generally able

to avail lesser amount due to their higher longevity as compared to male lives after certain age.

The corporation does not require any medical examination but only proof of age is required.

The corporation also issues this annuity provided the amount of annuity is not less than Rs. 100

per annum or the installment of annuity is not less than Rs. 25 per month or the cash option is

not less than Rs. 1,000.

This annuity is useful to those who desire to provide a regular income for themselves and their

dependents after the expiry of specified period.


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Classification of Annuity According To the Number of Lives:

1. Single Life Annuity:

Under this annuity one single person following is contractor. This annuity is most beneficial to

those who have no dependent and want to use all this saving during his life-time.

2. Multiple Life Annuities:

In this annuity more than one life is contracted. The annuity is also of two types:

(a) Joint Life Annuity where payment of annuity stops at the first death, and

(b) Last survivor annuity where payment continues up to the death of the last person of the

group.

Classification of Annuities according to Mode of Premium:

The annuities according to payment of premium can be level single premium annuities.

1. Level Premium Annuities:

For availing the annuity, the annuitant can deposit some amounts periodically so that, at the

end, he can get sufficient amount of annuity in equal installments.

During the accumulation period, i.e., before commencement of the payment of annuity, he isgiven option to get the surrender value in cash or to get the paid up values reduced in

proportion to the premium paid to the premium payable. At the death of the depositor, the

beneficiary can get the surrender values or premiums paid whichever is higher.

2. Single Premium Annuities:

The annuity in this case is purchased by payment of a single premium. Generally, the life

insurance amount is utilised for purchasing this annuity.

Classification according to the disposition of Proceeds:

The annuities according to this classification may be:

1. Life Annuity

2. Guaranteed Minimum Annuities and

3. Temporary Annuities.


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1. Life Annuity:

This annuity offers a regular income to the annuitant throughout his life-time. No payment is

made after his death. This is beneficial not in every case. When the annuity dies before

receiving all the amounts of the purchase price he is at loss. But, if he survives for a longer

period than expected, he is benefited by this annuity.

When we talk of annuity we mean such types of annuity. In other words, annuity means annual

payment up to life. But this annuity will be treated as fair-weather friend and the dependents

may be at loss because the father who had accumulated a large amount could not use the

funds at early death.

2. Guaranteed Minimum Annuity:

Annuity payment up to a period is guaranteed by the insurer. If the annuitant dies before the

specified period, annuity will continue up to the unexpired period. This annuity may be of twotypes, (i) Immediate Annuity with guaranteed payment, and (ii) Deferred annuity with

guaranteed payment.

(i) Immediate Annuity with Guaranteed Payment:

To safe-guard the loss in case of early death of the annurant, this annuity is issued where

payment for a fixed number of years will continue, irrespective of death.

Sometimes, instead of continuing the annuity payments after the death of the policy-holder,

the difference of the purchase money and annuity installments already paid is returned as a

lump sum to the legal representative of the annuitant.

This annuity may be of two types: first, where payment is continued up to the fixed period and

second, where payment continues up to the fixed period and up to life thereafter. The

corporation issues the second type of annuity where payments are guaranteed for 5, 10, 15 or

20 years and thereafter up to life.

It means that payment certainly be made up to this period whether the annuitant is alive or

dead within this period and if the annuitant survives after period, he is paid the annuity up to

this survival.

(ii) Deferred Annuity with Guaranteed Payment:

During the deferment period, there is no difference between this annuity and ordinary deferred

annuity. After deferment period, the payment under this policy will continue for a fixed period,

say 5, 10, 15 or 20 years and up to life, thereafter.


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This policy also guarantees refund of cash value of the balance of annuity where the insurer

promises to pay a lump sum to the beneficiary or to the annuitant's estate, the difference, if

any, between the total of annuities received before the annuitant's death and the purchase

price.

3. Temporary Life Annuity:

Under this plan, annuity payments cease at the end of a specified period or at the death

whichever is earlier. The corporation does not issue such annuity.

Retirement Annuity Policy

This annuity is useful employees at the time of retirement. This annuity is issued under the

following conditions:

The main object of the annuity contract must be the provision of life annuity tothe individual in old age.

During the life of the individual no sum other than the annuity to the individualshall be payable under the contract.

All annuities must be payable in India only.

The annuity must commence between the ages of 58 and 68.

The annuity payable shall not be capable of surrender, commutation orassignment.


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The annuity will ordinarily be payable for the life of the annuitant but if sodesired provision can be made for annuity to continue for a specified period

notwithstanding the death of the annuitant within the term on condition that such

period of guarantee for payment of the annuity does not exceed ten years.

This Annuity Policy will not be issued for an annuity of less than Rs. 600 per annum or where

the annuity installments are payable for a monthly installment of less than Rs. 50.


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Chapter-4

Selection of Risk

The selection of risk is a process, whereby inferior lives are “weeded out”.There

are some purposes behind the process of selection of risk.

Purpose of risk selection

The first and foremost purpose of the selection of risk is to determine whether

the proposal should be accepted or not.

The second objective of the selection is to determine the rate of premium to be

charged from the assured. The premium depends upon the amount of risk. Higher is the

risk the more will be amount of premium.

Insurance risk may be classified into standard or sub-standard on the basis of

selection. It is possible to determine what risks are to be accepted at normal rate of

premium what at extra premium and what not to be accepted at all.

The fourth aim of selection is to avoid any discrimination on the part of the lives

assured. Since the degree of risk is not the same to all persons. Different premiums

should be charged from different groups.


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The selection of risk is also essential to avoid adverse-selection:- Selection of risk

is very essential to check the anti-selection or adverse-selection whish means selection

of the persons for insurance who are not to be charged higher premium.

Factors Affecting Risk

In life insurance, the factors which may affect the risk are usually those factors which are

affecting the mortality; they are also called factors affecting longevity of a person.

Age

The age of life to assured is the most important factor to affect mortality. Except for a few years

of the childhood, the premium is determined at every year of the completion of age.

Minimum and Maximum limit of the age

The maximum age limit is fixed to avoid adverse selection. The minimum age limit is meant to

avoid risk of infant mortality.

Build

Build refers to physique of the proposed life and includes height, weight, the distribution of

weight and chest expansion. The relationship between height, weight, girth and expansion of

chest are the basic determinants of mortality expectations.


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Physical condition

The physical condition of the age life proposed has a direct bearing on the mortality of the life.

Insurers are therefore, very particular about the conditions of an applicant’s sight, hearing,

heart, arteries, lungs, kidneys, etc.

Personal history

The personal history of the life proposed would reveal the possibility of death to him. The

history may be connected with the:

Health record.

Past habit.

Previous occupation.

Insurance history.

Family History

Like the personal history, family history also requires information of habit, health, occupation

and insurance of other family members, particularly of the parents, brother and sisters.

Occupation

Occupation is an important factor to affect the risk. It affects the occupation in various ways.

Firstly the nature of work may be hazardous. Secondly, the morale of the workers may go

down. The chemical effect may be poisonous.

ResidenceThe residence also affects the risk. The risk will be lesser in a good climate area and more in a

bad climate area.

Present Habits

The general mode of living of the proposer affects the risk. Drunkards and non-temperate

persons cause increase in mortality.

Morals

Consideration of moral is essential to determine moral hazard. There are two types of hazards−

Moral and Physical hazard.

Race and Nationality

The mortality rate differs from race to race and nation to nation.


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Sex

Mortality among female sex is, generally, higher than that of male sex because the physical

hazard of maternity is present in the former case.

Economic Status

It is essential to examine that the family and business circumstances of the proponents are such

as to justify the amount of insurance applied for. This investigation also reveals whether the

income of the applicants bears a reasonable relationship to the amount of insurance which he

proposes to carry.

Defense Service

Though there has been much improvement in defense technology, yet flying or gliding, etc., is

still considered hazardous one. Sometimes, certain restrictive clauses are imposed for insuring

persons engaged in such services.

Plan of Insurance

Certain plans involve more responsibility to the insurer at death and so these plans are

restricted to only first class lives. Similarly, some plans have lesser risk and, therefore, can be

issued without any extra investigations.

Sources of Risk Information

Information on the factors affecting risk is collected before it can be evaluated to determine thedegree of risk. Information from various sources on a particular item will provide an effective

check.

The proposal form

The first and the important source of risk information is application form. Usually, the agent

asks all the questions which are written in the proposal form.

The proposal form is divided into two parts:

Application form; and

Personal Statement .

The application includes all the questions pertaining to home, address. Term of insurance, sum

to be assured, mode of premium payment, date of birth, name of the nominee, previous

insurance history, engagement in navy, air-force and military services.

Part second of the proposal form is called personal statement which is filled by


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Either the life to be assured, or

The agent or the development officer, writing at the dictation of the life to be assured.

Medical Examiner’s Report

The medical examiner has to identify the applicant to avoid the case of impersonation. Theinformation given by medical examiner is deemed to be correct and it is expected that the

examiners would give true and fair picture.

Agent’s Report

Although agents has to pursue or canvass a lot for getting proposal, yet he is required to state

whether the life to be assured, is insurable or not.

The Inspection Report

The insurers generally verify the information obtained by an independent agency. Sometimes

this investigation is conducted without the knowledge of the applicant.

The main advantage of this source is that the inspector provides fair and frank information

because they have no interest in the out come of the case.

Private Friend’s Report

The information from private friends is not generally required. But for some checking purposes,

confidential reports of the friends of the proposer are considered.

Attending Physicians

The attending of family physicians can give better records of health, history of the proposed life

and his family. It has been revealed that the family physicians have given true and fair reports

of the required information by the insurers.

Medical Information Bureau

The organization commonly known as MIB is an effective bureau for furnishing confidential

medical reports. This bureau is common in USA, but in Bangladesh such bureau has not started

yet.

Neighbors and Business Associates

Confidential reports about the applicant can be easily obtained from the neighbors and

business associates although it may be prejudice to the extent of friendship or enmity with the

proposer.


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Commercial Credit Investigation Bureau

The bureau assembles financial and social information of businessmen. The credit worthiness is

decided by the bureau. The information given by the bureau is treated confidential.

Insurance of Ladies and Minors

Proposals on the lives of minor boys and girls who have not completed 15 years of age will beconsidered only under Children’s Deferred Endowment Assurance and Children’s Anticipated

Plans. The proposal on the lives and girls who have completed 15 years of age will be

entertained only under Limited Payment Life Endowment Assurance. Double Endowment,

Guaranteed Triple Benefit, Anticipated Whole Life, Convertible Whole Life Assurance, Children’s

Deferred Whole Life Assurance.

The minor girls can get the benefits of insurance coverage subject to the condition that she

should be studying in school/college.

The proposal form must be signed by the father/mother. In absence of both the parents, it willhave to be signed by the legal Guardian of the minor.


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The following rating is done for female lives under Endowment Assurance and

Whole Life Plans.

Category of lives Rating Amount of Maximum Insurance

1. Women with

earned income

Same as in the

case of men

Same as in the case of men.

2. Women withunearned income

attracting income-

tax or with

sizeable personal

properties likely to

attract Estate

Duty.

__Do__

Equal to 5 times her ownaverage assessed income for the

last 3 years but not exceeding the

insurance cover on husband’s

life. For Estates Duty purposes,

upto the amount of estimated

Estate Duty.

3. Women not

covered by 1 and2.

Extra 3% (a)Single Women− On considera-

tion of insurance needs, subjectto maximum of TK 1,00,000; the

actual amount would depend on

the financial status etc., of the

family and the father and other

insurable members of the family.

(b)Married Women− Not

exceeding 3/4th of husband’s

insurance in force for full someassured with a maximum of TK

2.50 lacs.


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Classes of Risk

The various life risks cannot be treated individually, so they are put under few broad categories

based on the degree of each risk.

Uninsurable risk;

Insurable risk.

Uninsurable Risks:

If the If the insurance can be purchased at higher premium, there should not be uninsurable

risk. Theoretically; after investigating all the factors affecting a risk, the life insurance company

be able to give each due consideration and determining the premium charge for the insurance.

Insurable Risks:

Insurable risk are those which after the selection process can be carried out by an insurer

although there can be different terms and conditions for different policy-holders.

Standard Risk

The standard risk is related with the normal life where there is no much or no less risk. There

are certain criteria on which the risks are judged as normal life.

Sub-Standard Risk

Sub-standard risks are those risks which are higher though insurable than the standard risk.

Thus the sub-standard risks are above the standard risk and below the uninsurable risk.

Super-Standard Risk

The super -standard risk is present where there is lesser risk than the standard risk. This also

called a preferred risk.

Methods of Risk Classification

There are two methods of classification of risk.

The judgment method and second

The numerical rating system.


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The Judgment Method

Under this method the individual decisions of experienced persons, in the medical, actuarial,

underwriting and other departments are combined, These persons are qualified and permitted

to take decision. Unlike the other method no rigid rules and scales are prescribed and followed.

The judgment method is generally used where a single factor is to be considered or where the

decision for acceptance or rejection is to be taken.

The disadvantage of this method is that the personal direction may be biased by the whims and

negligence of the officers

Numerical Rating System

This system is based upon the principle that a large number of factors enter into the

composition of a risk and that the impact of each of these factors on the longevity of the risk

can be determined by a statistical study of lives possessing that factor.


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Chapter-5

Mortality table

Mortality table is such data which records the past mortality and is put in such form as can beused in estamiting the course of future data. Thyus the mortality table is to predict fuure

mortality. It is also described as the picture of a generation of individuals passing through time.

A large number of persons are selected and served for death and survival rated till all of them is

dead.


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Features of a mortaliy table

Observation of generation.

Start from a point .

Yearly estimation.

Mortality and survival rates.

Sources of mortality information

For construction of mortality table number of living of the beigining of each age and the

number of deaths during the age are required. The mortality table should constructed to

represent the past experience as accurately as possible. So the figures of mortality construction

should be as accurate as possible and based on large number of persons. The souces of

mortality construction can be obtained either from

Population statistics or

Records of life insurers.

Population Statistics:

The insurer gets number of living at each age from the census records and the number of deathsfrom municipal and other death records. The population statistics will reveal how many persons

have died at what age.

So, with the radix of total number of persons at the beginning, it can be calculated how manydied in a particularly age. The calculation of mortality table on this basis is not very easy andcorrect.

Records of Insurers:

The records of insurer give a correct figure because the death rates can be correctly recorded. Nodeath will go unrecorded, correct number of persons living and dead for each age can be known.

Collection of figures is done from the records of as many insurers as possible in large numbers

but is not more than 10 years covering, favorable and favorable years.

Generally 10-year period may be quite sufficient. The abnormal years are excluded from thesample. Separate mortality tables may be prepared for standard lives, sub-standard lives, femaleand male lives. Sub-classification according to sex, marital status, occupation, geographical area,

class may be made and tables are constructed separately.

The counting of persons is done very cautiously, withdraw and causation are excluded. Persons

included for calculation caused exposed to risk. If the calculation starts at the withdrawal from

this number is excluded.


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Year wise aggregation of number of deaths and number of loving persons is done from the

information of all insurers. Mortality rate at every age will be counted by dividing the number of

expired lives by number of exposed lives.

Types of mortality table

There are three types of mortality table:

Aggregate table

Select table

Ultimate table

Aggregate table:A type of mortality table that shows total statistics for the probability of living and dying

throughout a person's entire life cycle. It is based on the combined statistics of both the

Ultimate Mortality Table and the Select Mortality Table.

In other word, A table showing the number of deaths of policyholders relative to the total

number of persons who have purchased life insurance. Unlike an ultimate mortality table, an

aggregate mortality table does not account for the ages of policyholders or the number of years

they owned their policies before dying. Therefore, it may not provide as accurate a picture as

some other mortality tables; nevertheless, an actuary may use it to help price policies

appropriately.

Select Mortality Table:

A mortality table which outlines life contingency statistics for a certain period of time. A select

mortality table includes mortality data on individuals who have recently purchased life

insurance. These individuals tend to have lower mortality rates than individuals who are already

insured, due chiefly to the fact that they have most likely just passed certain medical exams

required to obtain insurance.

http://financial-dictionary.thefreedictionary.com/Policyholdershttp://financial-dictionary.thefreedictionary.com/Life+Insurancehttp://financial-dictionary.thefreedictionary.com/Ultimate+Mortality+Tablehttp://financial-dictionary.thefreedictionary.com/Mortality+Tableshttp://financial-dictionary.thefreedictionary.com/Actuaryhttp://financial-dictionary.thefreedictionary.com/Pricehttp://financial-dictionary.thefreedictionary.com/Pricehttp://financial-dictionary.thefreedictionary.com/Actuaryhttp://financial-dictionary.thefreedictionary.com/Mortality+Tableshttp://financial-dictionary.thefreedictionary.com/Ultimate+Mortality+Tablehttp://financial-dictionary.thefreedictionary.com/Life+Insurancehttp://financial-dictionary.thefreedictionary.com/Policyholders


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Select mortality table

Age Number of living Number of death Death rate per

thousand

X lz lx L

35 100000 316 3.16

35+1 99684 428 4.29

35+2 99256 454 4.57

35+3 99802 474 4.80

36 100000 323 3.23

In other word, a table showing mortality data of individuals who recently purchased life insurance.

The data is utilized by insurance companies in order to determine the premium to be charged to an

individual as well as the risks associated with life insurance.

Ultimate Mortality Table:

A mortality table that lists the death rates of insured persons of each sex and age group and

excludes data from policies that have been recently underwritten. An ultimate mortality table

also lists the proportion of individual survival from birth to any given age. Insurance companiesuse these tables to price insurance products and ultimately the profitability of these

insurance companies depend upon correct analysis of the table.

Ultimate mortality table

Age at entry 6 and over Age attained

20 4.31 25

21 4.35 26

22 4.38 27

23 4.41 28

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