Actuarial Notes

SOA Exam ALTAM Fall 2025, Question 2

Study guide: Exam ALTAM

An individual age 40 purchases a Type A Universal Life insurance policy with a Face Amount of 100,000.

The policy offers a no-lapse guarantee that specifies that from time 20, the policy will not lapse before age 90, provided that the policyholder pays a minimum premium of 1000 each year for the first 20 years.

You are given the following information:

  1. Cost of Insurance rates are set at 120% of the Standard Ultimate Survival Model (SUSM).
  2. The interest rate for discounting the cost of insurance charge is i_q = 0.02.
  3. The credited rate for year 1 is 4%.
  4. Expense charges are 50 per policy per year plus 3% of premiums.
  5. There are no corridor factors.
  6. There is no additional charge for the no-lapse guarantee.

Part a (1 point)

Briefly describe the difference between Type A and Type B Universal Life products.

Part b (2 points)

The policyholder pays a premium of 1500 at the start of the first year. Calculate the account value at the end of the first year, AV_1.

Part c (2 points)

You are also given:

  1. After 20 years, the policy qualifies for the no-lapse guarantee.
  2. The valuation basis for the no-lapse guarantee is the SUSM with i = 5\%.
  3. The account value at the end of year 20 is AV_{20} = 33{,}590.
  4. The account value at the end of year 40 is AV_{40} = 26{,}403.

(i) Calculate the reserve for the no-lapse guarantee at the end of year 20.

(ii) Calculate the reserve for the no-lapse guarantee at the end of year 40.

Part d (2 points)

Give two advantages and two disadvantages from the perspective of the insurer of offering a no-lapse guarantee on a Universal Life insurance product.

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Concepts tested

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