THE UNIVERSITY OF HONG KONG

DEPARTMENT OF STATISTICS AND ACTUARIAL SCIENCE

STAT2801 Life Contingencies
LN0: Introduction
Traditional life / ordinary life insurance contracts (OL)
1. Term insurance
(a) Premium pattern: usually level premium, paid until the end of the term or death,
whichever occurs rst.
(b) Benet pattern: a lump sum benet (usually predened by the contract) on the death
of the policyholder will be paid, provided that death occurs before the end of a specied
term.
(c) Renewability: depends on product features; if it is a renewable term insurance, then
renewability will be granted at the end of the original term, provided that there is no
further evidence of the policyholders health status.
2. Whole life insurance
(a) Premium pattern: usually level premium, paid until a certain age or death, whichever
occurs rst.
(b) Benet pattern: a lump sum benet (usually predened by the contract) on the death of
the policyholder will be paid whenever it occurs.
3. Endowment insurance
Note: This product is a mixture of a term insurance and a savings element.
(a) Premium pattern: usually level premium, paid until the end of the term or death,
whichever occurs rst.
(b) Benet pattern: a lump sum benet (usually predened by the contract) will be paid
either on the death of the policyholder or at the end of the specied term, whichever
occurs rst.
Modern insurance contracts
1. Universal life insurance (UL)
Note: This product combines investment and life insurance.
(a) Premium pattern: exible premium payments determined by the policyholder, as long as
the premium payment is sucient to pay for the designated sum insured under the life
insurance.
(b) Benet pattern: a xed amount of benet from the life element, plus a variable amount
depending on the performance of the investment fund.
1
Participating (Par) V.S. Non-participating (Non-par) product
1. Non-par product
It is a without-prot product.
2. Par product
It is a with-prot product.
The prot earned from the invested premium is shared with policyholder.
The with-prot arrangement may take the form of cash dividends, reduced premiums or
increased sum assured (called reversionary bonus).
Underwriting
The risk exposure when issuing an insurance contract depends greatly on the applicants
condition, for example, age, gender, smoking habits, occupation, hobbies and personal health
history.
An insurance company needs to collect these types of information to access an applicants
risk level, and hence decide whether or not to sell the insurance policy to the policyholder.
The process of collecting and evaluating such information is called underwriting.
The rigour of the underwriting process depends heavily on the type of insurance being pur-
chased and on the sum insured. For example, term life insurance generally is more strictly
underwritten than whole life insurance since the risk exposure for term life insurance (includ-
ing whether or not there is a payment and the timing of the payment) is greater than the risk
exposure for whole life insurance (including only the timing of the payment), assuming that
both are having the same sum insured.
Life annuities
1. Whole life annuity
(a) Premium pattern: can be single premium or regular premium.
(b) Benet pattern: regular series of payments until the death of the annuitant.
2. Term life annuity
(a) Premium pattern: can be single premium or regular premium.
(b) Benet pattern: regular series of payments for some maximum period, provided that the
annuitant survives that period.
2