MTHEL131 Lecture Notes - Lecture 4: Mutual Insurance, Manulife, Mutual Organization
12 Mar 2014
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If the customer is not comfortable with this risk, they may choose to purchase an annuity contract instead. This contract would give them a guarantee from the insurance company to pay the shortage every month (ex: 2500). Now the insurance company is taking on the risk of the investment instead of the policy owner. If the customer has external sources of insurance (ex: group insurance from en employer), the amount is deducted off of the total required coverage. The entire amount will be provided to the beneficiary and it is up to them to spread it out responsibly according to the plan: what type of coverage is necessary, term or permanent. What are the three variables considered in the pricing of policies? (establishing the premium: mortality (age, life expectancy) 2: expenses of the company (cost of business) *buffer (in case they don"t have enough money) Insurance companies take the premiums, and put the money into a reserve.
