Chapter 8: Benefit Reserves

Notations:
br death benefit payable at the end of year of death for the j-th policy year
71J~l: benefit premium paid at the beginning of the j-th policy year
bt : death benefit payable at the moment of death
7ft: annual rate of benefit premiums payable continuously at t
Benefit reserve:
00 00

hI! = Lbh+j j]Jx+h qx+h-tj - L

j=O j=O

V
U
ul)x+tfJ~,(t + n)dl1 L 7ft+u V
li
U P2'+t dv
o

Recursion relations:

hI! + 7fh l' f]x--;-h . bh-'-l + 11 Px+h . h+1 If

(" ~7 + 7fh)(l + i) qx+h . + 11x+h . h+1 If
(hI! + (l+i) h+ll! + - h+1 V)

Terminology:
"policy year h+ 1" the policy year from time t = h to time t = h+1
"h V + == initial benefit reserve for policy year h + 1
terminal benefit reserve for polky year h
terminal benefit reserve for policy year h + 1

Net amount at Risk for policy year h +1

='let Amount Risk

\Vhen the death benefit is defined as a function of the reserve:

For each preminm P, the cost of providing the ensuing year's death benefit, based on the net amount at

risk at age .T + h, is : - h-ti V). The leftover, P - vqx,h(/)h+l - h+IV) is the source of reserve

creation. Accullmlated to age :r + 'TI, we have:

71-1

L
h=O
- htl it)] (1 +
n~1

- L1Hlx+h(bhl-l - 11-'-1 V)(l +

h=O

If the death benefit is equaJ to the benefit reserve for the first 17 policy yean,

If the death benefit is equal to plus the benefit reserve for the fiTst n policy years
71-1

nV=V~m- L +
h=O

Exam R Life Contingencies - LGD(:) 9