SOA Exam ALTAM Sample Question 53
Study guide: Exam ALTAM
For a Type A universal life policy issued to (50), you are given:
- (i) The face amount is 100,000.
- (ii) All cash flows occur at policy anniversaries.
- (iii) The policyholder pays an initial premium of 15,000.
- (iv) The cost of insurance (COI) is calculated based on 120% of the mortality in the Standard Ultimate Life Table. The interest rate for discounting the net amount at risk,
i^q, is 0.04. - (v) The expense charge is 1% of premium.
- (vi) The credited interest rate for policy year 1 is 5%.
- (vii) The corridor factor in year 1 is 2.2.
- (viii) The surrender charge in policy year 1 is 5% of the premium paid.
(This is an edited version of Question 6 from the Fall 2014 Written Answer exam.)
Part a (1 point)
Explain why the corridor factor requirement exists for universal life insurance.
Part b (5 points)
- (i) Calculate the COI in policy year 1 assuming there is no corridor factor requirement.
- (ii) Calculate the COI in policy year 1 based only on the corridor factor (as if the face amount were 0).
- (iii) Determine the COI in policy year 1.
Part c (2 points)
Calculate the account value, additional death benefit, and cash value at the end of policy year 1.
Part d (2 points)
The policy contains a no-lapse guarantee providing term insurance of 100,000 until age 90.
If the expected present value of the guaranteed insurance coverage is greater than the account value, the company holds a reserve for the no-lapse guarantee equal to the difference. The expected present value is based on the Standard Ultimate Life Table at 5% interest with no expenses.
The account value at the end of policy year 20 is 20,000.
Calculate the reserve for the no-lapse guarantee at the end of year 20.
Answer this question and see the worked solution