RISK MANAGEMENT

ASSIGMENT 3
Lecturer : Dr. Ika Pratiwi Simbolon

Group 3 :

Awi Naslea (008201805007)

Ayu Anggita (008201805017)
Bella Aulia Indah Sari (008201805043)
Bella Oktaviani (008201805028)

PRESIDENT UNIVERSITY

Jababeka Education Park, Jl. Ki Hajar Dewantara, RT.2/RW.4, Mekarmukti, Kec.

Cikarang Utara, Bekasi, Jawa Barat 17550
 ASSIGNMENT

1. What is the difference between term life insurance and whole life insurance? Explain the tax
advantages of whole life insurance.

Answer :

Lifetime term life insurance also provides benefits in the form of sum insured (UP) if the insured
dies. However, the two life insurance differences. Here are some differences:

A. Duration

Viewed from the period of protection, term life insurance provides protection within a certain
period, for example five years, 10 years, 15 years, 20 years, 25 years, and 30 years. While life
insurance for life, as the name implies, provides protection for the insured 99-100 years or live
life.

B. Cash Value

Cash value or cash value is the cash benefit that will be received and can be disbursed in a
certain period. In terms of life, cash value is unknown. That is why, life insurance only provides
benefits in the form of UP and can only be disbursed if a death claim occurs. While life
insurance for life provides cash value benefits in addition to offering UP. The large value on
traditional types of life insurance is determined at the beginning of the policy. Hopefully, the
whole life can not choose a portfolio of fund development and does not know the funds placed
on any fund products.

C. Premium leave

Premium leave is a period in which the customer does not need to deposit premiums without
making a lapse policy or die. Term life insurance does not recognize the term premium leave. So
if the customer does not deposit the premium, the policy will die. While there are some whole
life insurance that offers a limited payment period, for example 10 years, 15 years, or 20 years.
Although customers only pay cash premiums for a certain period, the policy still provides life-
long protection. This can happen because the customer has enough cash value to pay the
premium, so that the customer does not need to spend more to pay the premium. Of course this is
very helpful for customers who have entered retirement age and are no longer active in having a
steady income.

D. Premium Fee

The cost of premiums offered by term life insurance is generally cheaper than the cost of whole
life life insurance premiums. This is because term life insurance only provides benefits in the
form of UP, while whole life insurance provides benefits in the form of UP and cash value. For
example, term life insurance that provides UP of Rp1.5 billion charges a premium of Rp300,000
per month. While whole life insurance that provides similar UP charges a premium of Rp1
million per month. Then, the premium costs that apply to term life insurance are fixed in a
certain period and will increase in the next period. For example, in the first 10 years customers
will be charged a premium of Rp. 300,000 per month. While in the 11th to 20th years, customers
will be charged a premium of Rp600,000 per month, and in the 21st to the 30th year will be
subject to a premium of Rp1 million per month. Unlike the case in whole life insurance
premiums that are permanent forever, which is Rp1 million per month.

The benefits of lifetime insurance are:

- Policyholders are possible to get cash value from premiums already paid.
- If you as an insured cannot pay periodic premium payments, you can use the cash value
of the premium already paid to pay the next premium.

- The insurance premium that you have paid will not be forfeited if there are no claims.

- When the contract expires, the sum insured will be given in full.

2.      Explain the meaning of variable life insurance and universal life insurance.

Answer :

- Universal Life Insurance

As the name implies, this type of insurance provides two benefits at once. The two benefits are in
the form of benefits for a certain period of time as well as savings benefits that have been paid
through premiums. This type of insurance is classified as a very flexible type of insurance
because as a policy holder, you can use the savings whenever you want. That is why many use it
as education savings, old age savings, and personal needs such as vacations and even for other
investments.

- Unit Link Life Insurance (Variable Life Insurance)

For those of you who are still not common enough for investment but want to do early protection
for yourself or your family through insurance at the same time, this type of insurance is the right
choice. Although not much different from the type of lifetime insurance, other benefits that can
be obtained from unit link life insurance is that you can also invest that is not much different
from pure investment. However, the amount of premiums that will be given for investment is not
entered into the stock market at once but through a sub account of the insurance company. In
addition, investment returns will always be affected based on stock market movements and can
produce erratic amounts. It could be in large quantities or vice versa.
 3. A life insurance company offers whole life and annuity contracts. In which contracts does
it have exposure to (a) longevity risk, (b) mortality risk?

Answer :

- Annuity contracts carry a longevity risk

- Life insurance contracts carry a death risk.

4.      Use Mortality Table to calculate the minimum premium an insurance company should
charge for a $1 million two-year term life insurance policy issued to a woman aged 50. Assume
that the premium is paid at the beginning of each year and that the interest rate is zero.

Answer :

The probability that the woman will die during the first year is 0.003289

The probability that the woman will die during the second year is

(1−0.003289)0.003559 = 0.003547

Suppose that the break-even premium is X. We must have

1,000,000(0.003289 + 0.003547) = X+ (1 − 0.003289)X so that X= 3424

The break-even premium is therefore $3424.

5.      From Mortality Table, what is the probability that a man aged 30 will live to 90? What is
the same probability for a woman aged 30?

Answer :

The probability of a male surviving to 30 is 0.97372

The probability of a male surviving to 90 is 0.16969
The probability of a male surviving to 90 conditional that30 is reached is therefore
0.169690.97372 = 0.17427
The probability of a female surviving to 90 conditional that30 is reached is
0.286490.98551 = 0.29070

6.      How does health insurance in the United States differ from that in Canada and the United
Kingdom?
Answer :

Amerika Serikat
 
Saat ini, AS dapat dikatakan mempunyai asuransi kesehatan nasional rawat inap untuk penduduk
diatas 65 tahun saja (lansia) yang disebut Medicare part A, B dan C. Tapi karena asuransi
nasional di Amerika Serikat hanya berlaku bagi penduduk lansia, tidak semua penduduk
Amerika yang berjumlah sekitar 280 juta jiwa memiliki asuransi kesehatan.

Sekitar 50 juta penduduk AS yang berusia di bawah 65 tahun (sekitar 25 persen penduduk usia
produktif) tidak memiliki asuransi kesehatan. Ini merupakan suatu bukti kegagalan mekanisme
pasar dalam bidang kesehatan, karena AS memang didominisasi oleh asuransi kesehatan
komersial. Dengan belanja kesehatan per kapita kini lebih dari US$ 5.000 per tahun, AS adalah
satu-satunya negara maju yang tidak mampu memiliki asuransi kesehatan nasional.

Kanada

Sistem jaminan kesehatan di Kanada disebut juga Medicare. Sebelum tahun 1940an, penduduk
Kanada mendapatkan pelayanan kesehatan dengan cara membayar dari kantong sendiri (out of
pocket) sesuai dengan kemampuannya masing-masing. Penduduk yang mampu bisa membeli
asuransi kesehatan komersial, tetapi sebagian besar penduduk tidak mampu membelinya. Hal itu
menimbulkan banyak masalah akses dan kemanusiaan akibat penduduk tidak mampu membayar
pelayanan kesehatan yang dibutuhkannya.

Usaha menyediakan jaminan kesehatan kepada semua penduduk baru dimulai tahun 1947 ketika
propinsi Saskathcwan memulai penyelenggaraan asuransi kesehatan wajib  yang sering juga
disebut asuransi kesehatan publik, untuk pelayanan rumah sakit saja. Sepuluh tahun kemudian,
pemerintah federal tertarik untuk memperluas sistem jaminan yang diberikan oleh propinsi
Saskatchwan.

Pada tahun 1956, pemerintah federal merangsang propinsi lain untuk menyelenggarakan jaminan
perawatan rumah sakit dengan memberikan kontribusi sebesar 50 persen dari dana yang
dibutuhkan propinsi. Pada tahun 1961 seluruh propinsi dan dua daerah teritorial telah menyetujui
untuk memberikan paling tidak jaminan rawat inap.

Medicare menggunakan prinsip dasar yang menjamin akses universal, portabel, paket jaminan
yang sama bagi semua penduduk dan dilaksanakan otonom di tiap propinsi. Kini seluruh
penduduk Kanada dapat menikmati pelayanan kesehatan komprehensif tanpa harus memikirkan
berapa besar biaya yang harus mereka keluarkan dari kantong sendiri bahkan untuk penyakit
berat sekalipun walaupun pelayanan rawat jalan pada praktek dokter, baik yang praktek mandiri
maupun kelompok, masih harus dibayar sendiri oleh penduduk.

Inggris

Di Inggris, kata Hasbullah, sistem jaminan sosial nasionalnya dinamakan National Health
Service (NHS). Jaminan kesehatan ini didanai dan dikelola oleh pemerintah secara nasional
(tidak terdesentralisasi), namun sifat pengelolaanya sebagian dibiayai dari kontribusi wajib oleh
tenaga kerja (termasuk di sektor informal) dan pemberi kerja. Sedangkan penyaluran dananya
melalui anggaran belanja negara yang sebagian besar bersumber dari pajak umum (tax-funded).
Untuk cakupan kepesertaan, NHS mencakup seluruh penduduk (universal coverage). Selain itu,
tidak ada kelas di rumah sakit karena pusat layanan kesehatan ada pada layanan kesehatan
primer.

7.      An insurance company decides to offer individuals insurance against losing their jobs.
What problems is it likely to encounter?

Answer :

The various risks that can befall our lives either that can happen to ourselves or to the assets that
we have, often also have a financial impact. for example, when you have an accident and must
immediately get help, the hospital requires some health money. Through insurance, the financial
risk will be transferred to a third party, namely the insurance company. when risks occur, the
costs associated with these risks are borne by the insurance provider. To get these insurance
benefits, we only need to pay according to the terms of the insurance policy that we buy.

8.      Why do property-casualty insurance companies hold more capital than life insurance
companies?

Answer :

Property insurance payments represent life insurance payments. Property insurance has a fairly
clear purpose related to asset property. Property insurance is refused fatherly releasing unwanted
losses such as flooding earthquake or other disasters. Premiums that must be issued will depend
on what will be received. The higher the level of risk, the higher the premium level, owning
insurance property will be far more profitable for the future.

9.      Explain what is meant by “loss ratio” and “expense ratio” for a property- casualty
insurance company. “If an insurance company is profitable, it must be the case that the loss ratio
plus the expense ratio is less than 100%.” Discuss this statement.
Answer :

Loss ratio : rasio klaim tahunan yang dibayarkan oleh perusahaan asuransi dengan premi
yang diterima

Expense ratio : a comparison between the operating expenses of managing mutual fund
investment funds in one year with the average value of net assets in one year.

the statement is incorrect because investment income can be very high or low. Premium income
is received at the beginning of the period, and payments are made during the current period or at
the end of the period

10.  What is the difference between a defined benefit and a defined contribution pension plan.

Answer :

Defined Contribution PlansDefined contribution plans are funded primarily by the employee,
called the participant, with the employer matching contributions to a certain amount. The most
common type of defined contribution plan, which many people are familiar with, is a 401(k)
plan. A participant may elect to defer a portion of their gross salary via a pre-tax payroll
deduction to the plan, and the company matches according to its summary plan description
(SPD). The contributions can be invested, at the participant's direction, in select mutual funds,
money market funds, annuities, or stocks offered by the plan. As the employer no longer has any
obligation on the account's performance after the funds are deposited, these plans require little
work and are low risk to the employer. The employee must direct contributions and investments
to grow the assets adequate for retirementDefined Benefit PlansEmployers guarantee a specific
retirement benefit amount for each participant of a defined benefit plan, which can be based on
the employee's salary, years of service, or a number of other factors. Employees have little
control over the funds until they are received in retirement. The employer bears the investment
risk of ensuring the defined benefit amount is able to be paid to the retired employee. Due to this
risk, defined benefit plans require complex actuarial projections and insurance for guarantees,
making the costs of administration very high. This has made defined benefit plans all but
obsolete.