EVALUATION OF ASSURANCES AND

ANNUITIES
Learning Outcomes;
After studying this lecture, you should be able to:
a. Extend the annuity factors to allow for the possibility that payments are more frequent than annual but
less frequent than continuous.
b. Evaluate the means and variances of the payments under various assurance and annuity contracts,
assuming a constant force of mortality.

Case Application
Previously in ACS 212, we introduced the basic functions of life assurance mathematics, that is, expected present
values and variance of assurance and annuity contracts. The next step is to explore useful relationships between
these EPVs. We can then apply the same ideas to other types of life assurance contracts.

The formulae we have derived for EPVs can be interpreted in a simple way, which is often useful in practice.
Consider, for example

Each term of these sums can be interpreted as:

 an amount payable at time k
 a discount factor for k years
 the probability that a payment will be made at time k .
The first term in each case is just 1, but it should be easy to see that this interpretation can be applied to any
benefit, level or not, payable on death or survival. This makes it easy to write down formulae for EPVs.

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