LIFE CONTINGENCIES II

UNIT III PROBLEMS

1. Assuming that both lives are independently subject to AM92 mortality, calculate the
following:

2. Calculate P(5<K50:60<10) assuming that the two lives are both independently subject
to AM92 mortality.
3. Calculate:

assuming that the two lives are both independently subject to AM92 Ultimate
mortality.

4. Calculate assuming that the 55-year-old’s mortality follows PMA92C20, the

51-year-old’s mortality follows PFA92C20, and the annual effective interest rate is
4%.

5. Calculate
Basis: a constant force of mortality for (60) of 0.005 pa,
a constant force of mortality for (50) of 0.002 pa,
a force of interest of 5% pa.
6. A life office sells joint whole life assurances to male lives aged 60 and female lives
aged 55 exact. The benefits, payable at the end of the year of death in each case, are
£100,000 on the first death and £50,000 on the second death. Level premiums are paid
annually in advance while the policy is in force.
i. Calculate the annual premium payable.
Basis: PMA92C20/PFA92C20 mortality, 4% pa interest. Ignore expenses.
ii. Calculate the prospective reserve just before the payment of the 10th
annual premium, assuming both lives are still alive at that point, and using
the same basis as was used to calculate the premium.
iii. For a policy where the male and female are both aged 63, list the three
possible states that a last survivor assurance may be in after a few years.
Identify which of these three states requires the largest reserve.
7. A life office sells joint whole life assurances to male lives aged 60 and female lives
aged 55 exact. The benefits, payable at the end of the year of death in each case, are
£100,000 on the first death and £50,000 on the second death. Level premiums of
£2,962.50 are paid annually in advance while the policy is in force.
Write down the future loss random variable at the end of the 9th policy year for this
policy, in the case where both lives are still alive, ignoring expenses.

8. i)Explain what it means for the last survivor status to remain active for at least
10 years.
(ii) Calculate the probability that the event described in part (i) occurs, assuming the
two lives are independent with respect to mortality and:
(a) the mortality of each life follows the ELT15 (Males) table
(b) each life is subject to a constant force of mortality of 0.025 pa.
9. i)Explain what it means for the joint life status 50: 60 to fail within the next 10 years.
(ii) Calculate the probability that the event described in part (i) occurs, assuming the
two lives are independent with respect to mortality and:
(a) the mortality of each life follows the ELT15 (Females) table
(b) each life is subject to a constant force of mortality of 0.025 pa.

10. Given that and , calculate and

11. Consider each of the symbols listed below:

Explain carefully the meaning of each of these symbols and calculate the value of
each, assuming that:
(x) is subject to a constant force of mortality of 0.01 pa
(y) is subject to a constant force of mortality of 0.02 pa
the force of interest is 0.04 pa.
12. A life insurance company issues 1,000 last survivor annuities to pairs of lives aged 60.
Each pair comprises one male and one female, and the annuity pays £5,000 pa
continuously until the second of the two lives dies. The single premium charged is
£90,000.
Calculate the expected present value of the profit to the life office and the standard
deviation of this profit in respect of this group of policies.
Basis: Mortality: PMA92C20 for the male life, PFA92C20 for the female life
Interest: 4% pa effective
 Using this mortality assumption, at an interest rate of 8.16% pa.
13. William, aged 75, and Laura, aged 80, are the guardians of a child. They take out a
life assurance policy that provides a payment of £25,000 immediately when the
second of them dies. Level annual premiums are payable in advance whilst the policy
is in force.
(i) Calculate the annual gross premium, using the basis given below.
(ii) Calculate the gross premium prospective reserve just before the sixth
premium is paid, using the basis given below, assuming that both William and Laura
are still alive at that time.
Basis: Mortality: PMA92C20 for William, PFA92C20 for Laura
Interest: 4% pa effective
Expenses: Initial: £250
Renewal: 5% of each premium, excluding the first
14. A life insurance company issues an annuity to a male, aged 68, and a female, aged 65.
The annuity of £10,000 pa is payable annually in arrears and continues until both
lives have died.
The insurance company values this benefit using PMA92C20 mortality for the
male life, PFA92C20 mortality for the female life and 4% pa interest.
(i) Calculate the expected present value of this annuity.
(ii) Derive an expression for the variance of the present value of this annuity in
terms of appropriate single life and joint life assurance functions.
Let X be the present value of the insurer’s profit from this policy.
(iii) If the insurance company charges a premium of £150,000 for this policy,
calculate P(X > 0) .
15. A man aged 60 exact and a woman aged 65 exact wish to purchase an annuity that
provides:
 £25,000 pa payable while they are both alive,
 £20,000 pa payable for the remainder of the woman’s life, if the man dies first,
 £15,000 pa payable for the remainder of the man’s life, if the woman dies first.
All the annuity payments are made annually in arrears.
(i) Write down an expression for the present value random variable of this benefit.
(ii) Calculate the expected present value of this annuity benefit, using the following
basis:
Mortality: PMA92C20 for the male life, PFA92C20 for the female life
Interest: 4% pa effective