Selected Topics in Insurance

Second year
Arabic Section

Lecture dated
Monday
16/3/2020
 NSP of Whole life insurance:
• A whole life insurance is defined as a insurance
policy its benefit consisting of a fixed sum to be
paid to the beneficiary at the time of the death
of the insured regardless of when it occurs.

• The net single premium for this policy is

calculated using the general equation:
Total Net Single Premiums
=
Present value of total benefits
 NSP of Whole life insurance (Continue):
• Note that the calculation of the NSP based on the
following assumptions:
• The face amount of the policy (sum insured or
benefit) payable at the end of the year in which
the death of the insured occurs;
• The company invested funds (premiums) will
earn interest at exactly the assumed rate; and
• The deaths among the policyholders will occur at
exactly the rates given by the adopted mortality
table.
 NSP of Whole life insurance (Continue):
• Let Ax denote the NSP for a whole life insurance
of $1 to be paid at the end of the year in which
dies occurs.
Let lx numbers of insureds, then:
Total premiums = Ax * Lx

During the first year dx deaths occur, each

beneficiary will take one $, then :
the present value of the first year benefits will be
$v.dx
the present value of the second year benefits will
be $v2.dx+1
 NSP of Whole life insurance (Continue):
Inception___________________________
$Ax . lx
first second Third Fourth……………………ɯ
d d d ……………………… d
x x+1 x+2 ɯ

$v . dx
$v2 . dx+1
$v3 . dx+2
.
.
.
$Vɯ-x . dɯ
NSP of Whole life insurance (Continue):
Ax . lx= v1.dx + v2.dx+1 + v3.dx+2 + … + vɯx.dɯ
Ax =v1.dx + v2.dx+1 + v3.dx+2 + … + vɯ-x.dɯ /lx
Multiplying numerator and denominator of the
right handside of the equation by vx we find:
Ax=vx+1.dx+vx+2.dx+1+vx+3.dx+2+…+vɯ.dɯ/vx.lx
• Let the product vx+1.dx = Cx, vx+2.dx+1 = Cx+1,
vx+3.dx+2 = C x+2, and so on we have:
Ax = Cx + Cx+1 + Cx+2 + Cx+3 +…… + Cɯ-1 / Dx
• Donate by the commutation symbol:
Mx = Cx + Cx+1 + Cx+2 + Cx+3 +…… + Cɯ.
we have: Ax = Mx / Dx
Exercises:
• Example 7:
Find the net single premium for a whole life
insurance of $40000 on the life of a man aged
40?
• Solution:
• Type of the policy = Whole life insurance
• X= 40 n= ………. S = 40000
A40 = M40 / D40
NSP = 1151855/2853001 . 40000
= 0.4037345238 . 40000
= $16149.381
Exercises (Continue):
• Example 8:
How mach whole life insurance can a man aged
30 purchase with $2000?
• Solution:
• Type of the policy = whole life insurance
• X = 30 n= …… NSP=2000 S =?
A30 = M30 / D30
NSP = 1234952/3905782 . S
2000 = 0.3161855936 . S
S = 2000/0.3161855936
= $6325.400
NSP of Term insurance policy
• A term insurance can be defined as the benefit
consisting of a fixed sum to be paid to the
beneficiary at the death of the insure, if death
occurs within a limited period.

• It should be noted that no payment is made by

the company in the event that the insures
survives the limited period.
NSP of Term insurance (Continue):
Inception___________n________maturity
$ Ax1:n . lx
First Second Third ……………………………. N
d d d …………………….….dx+n-1
x x+1 x+2
$v. dx
$v2. dx+1
$v3. dx+2
.
.
.
$vn. dx+n-1
NSP of Term insurance (Continue):
• Let Ax1:n ‫ﬧ‬donate the net single premium for an
n-year term insurance of $1 one the life of an
insured at age x. The mark “1” above the age
indicates that the benefit is payable only if the
insured dies before the n years expire.
• total net single premiums collected immediately
by the company would aggregate $ Ax1:n ‫ﬧ‬. lx
• Hence, equating the present value of the total
net premiums to the total present value of the
benefit, we find:
NSP of Term insurance (Continue):
Ax1:n‫ = ﬧ‬v1.dx + v2.dx+1 + v3.dx+2 + + vn.dx+n-1
Ax1:n ‫=ﬧ‬v1.dx+v2.dx+1+v3.dx+2+..+ vn.dx+n-1/ lx
• Multiplying numerator and denominator of
the right handside of the equation by vx we
find:
Ax1:n ‫ =ﬧ‬vx+1.dx+vx+2.dx+1+.+vx+n.dx+n-1 / vx.lx
• Donate by the commutation symbol:
Mx– Mx+n = Cx + Cx+1 + Cx+2 + Cx+3+..+ Cx+n-1
we have:
Ax1:n‫( = ﬧ‬Mx - Mx+n) / Dx
Exercises:
• Example 9:
Find the present value for 10 years term
insurance if the insured is 35 and the sum
insurance is $500000?
• Solution:
• Type of the policy = term
• X = 35 n = 10 S= 500000
A351:10 ‫( = ﬧ‬M35 – M35+10) / D35
NSP = (M35 – M45 )/ D35 . 500000
=(1194810 – 1098094)/331295 . 500000
= $145966.586
Exercises (Continue):
• Example 10:
How mach 5 years term insurance can a man aged
30 purchase with $2000?
• Solution:
• Type of the policy = term
• X =30 n=5 NSP = 2000 S=?
A301:5 ‫ﬧ‬. S = (M30 – M35)/ D30
NSP = (M30 – M35)/ D30 . S
2000 = (1234952 – 1194810)/3905782 . S
S = 2000/0.102775833
= $19459.828