Qs-Factors Affecting risk:1.1.Age is important to determine the premium.2.

Age is rounded to nearer to

the birthday.3.Person below six months and above six months of the age will be treated the same age.4.a
person of 22 years 7 months and another person of 23 years 5 months will be treated as 23. Maximum
and Minimum Age Limit; • To avoid adverse selection, the maximum age limit is fixed.• At advanced age
the chances of moral hazard is higher.• Most applicants will fail the medical examination at old age.•
Mortality is certainly higher.• The minimum age limit is meant to avoid risk of infant mortality.
2.Physical- The physical condition of the life proposed has a direct bearing on the mortality of the life
assured.Sight,Hearing,Heart,Arteries, Lungs, Tonsils,Teeth,Kidneys, Nervous system, etc.
The information is confirmed and supplemented by a medical examination which is to detect any
malfunction of the vital organs of the body.3.Personal History –The history may be connected with
the•Health record; previous surgical operation or certain serious disease.•Past habit;addiction to drugs
and alcohol which may be repeated.•Previous occupation; the past hazardous occupation generally
affects health slowly.•Insurance history; the previous amount of insurance may disclose the degree of
risk. 4. Family history - Family history of other family members like parents, brothers and sisters. Even
the children’s history is also required.ex-diseases like tuberculosis and insanity, diabetics, high blood
pressure 5.Economic status:The high insurance (sum assured) for persons with high income is justified.
The circumstances need to be investigated to justify the need for insurance for the amount applied. The
chances of death are also lower in higher strata of society.
Qs;Sources of Risk Information-1.The Proposal Form-The application form-Home address, term of
insurance, sum to be assured, mode of premium payment, date of birth, object of insurance, name of the
nominee, previous insurance history, acceptance or rejection of the proposal, engagement in navy, air
force, and military service The personal statement;Either life to be assured. The agent or the
development officer, writing at the dictation of the life to be assured.The statement mentions the name of
the life to be insured, the family history of the father, mother, brothers, and sisters in connection with their
health and illness and the cause of death. Questions about bodily impairments, serious disease, habits,
operation, accident or injury. 2.Medical Examiner’s Report;•The information given by the medical
examiner is deemed to be correct and it is expected that the medical examiners would give a true and fair
picture.•Opinions of the medical examiner for longevity,suspected health, first class lives, etc are
required.• He has to declare that the findings are true and correct.3.Agent’s Report;The agent is required
to state whether the life of the insured is insurable or not.He has to furnish information of sum assured,
name, acquaintances with the proposer, time and place of first introduction,identity of the life, medical
examiner’s name and address, occupation and monthly income of the proposer,general state of health,
relationship with the agent etc. The agent has also to disclose the financial and social position of the
proposer. The agent is required to disclose all the unfavorable information of the life proposed. 4.Private
Friends Report;For some checking purposes, confidential reports of the friends of the proposer are
considered. Since friends are fully aware of the personal and private life of the proposer, they can give
better information than the agents. But naturally real friends do not want to harm their friends. So a
friend's report may not always be correct.5.Attending Physicians;The attending or family physicians can
give better records of health, history of the proposed life and his family. It has been revealed that the
family physicians have given true and fair reports of the required information.
Qs-Classes of Risk-All risks can’t be treated individually, so they are put under a few broad categories
based on the degree of each risk; 1. Un-Insurable Risks 2.Insurable Risks-• Standard Risk • Substandard
Risk • Super-Standard Risk.Uninsurable risk- Practically, there are a number of reasons why some
persons are not insurable. If the insurance can be purchased with a higher premium, there should not be
any uninsurable risk. So people on death bed would buy the insurance knowing that after a few premiums
they will die which will be a case of speculation. Then it would be unfair to other healthy policyholders
Insurable risks -The insurable risks are those which after the selection process can be carried out by an
insurer although there can be different terms and conditions for different policy-holders.
There are;•Standard risk; related with normal life•Substandard risk; where risks are higher than the
standard.•Super-standard risk; risk is less than the standard risk.
Qs-Calculation of Premium: two types;1.Net Premium,- Based on; i)The mortality and ii)Interest.2.Gross
premium Based on; i)The mortality rate ii)Assumed interest rate iii)Expenses, and iv) Bonus.
Both types are further subdivided into two parts;i.Single Premium,-Is paid in lump sum.ii. Level Premium-
Is paid periodically in installments.May be yearly, half-yearly, quarterly, or monthly
Firstly, net single premium is calculated and other premiums are calculated based on this calculation.
Qs-Types of Substandard Risks -Increasing Extra Risks;The extra mortality increases as the life
assured grows older.patients with diabetes, occupational diseases, being overweight, etc.Decreasing
Extra Risks;Extra hazard decreases with increase in health.patients of defective past history.Constant
Extra Risks;Extra hazard remains at the same level throughout the lifetime of
tassured.blindness,deafness,or loss of limb, etc.

QNet Single Premium for 5-Year Term Policy Assume that the period of term insurance is 5 years. Rate of
return on investment is 3 percent. The person is proposing at the age of 40 for a period of 5 years. The
mortality experience will be like shown in theOriental 1953-54 Experience Life Table

Years of Age Number of Number of Amount of PV of tk. 1 PV of

Insurance Persons Deaths Claims per Claim 4x5x6
Living Deaths

1 2 3 4 5 6 7

1 40 96,463 273 1,000 0.971 265,083

2 41 96,190 302 1,000 0.943 284,786

3 42 95,888 336 1,000 0.915 307,440

4 43 95,552 375 1,000 0.888 333,000

5 44 95,177 418 1,000 0.863 360,734

• PV of all claims tk. 1,551,043
• Total premium to be charged on all 96,463 policies = tk. 1,551,043
• Therefore, premium per policy = tk. 1,551,043/ 96,463 = tk. 16.18
BQ- Another method of calculation of Single Policy Premium by taking into account of probability of death
Years of Insurance Age Probability of Amount of PV of tk. 1 Net Single
deaths Policy Premium
expressed in 3x4x5
units

1 2 3 4 5 6

1 40 0.00283 1,000 0.971 2.74793

2 41 0.00314 1,000 0.943 2.96102

3 42 0.00350 1,000 0.915 3.20250

4 43 0.00393 1,000 0.888 3.48096

5 44 0.00439 1,000 0.863 3.78857

Total = tk. 16.18

BQ - Suppose net single premium for an immediate annuity of tk. 1,000 to be paid annually issued at the
age of 105 is to be calculated.
Assuming the rate of interest is 3 percent and the 1937 Standard Annuity Mortality Table is used. BQ- The
calculation will be as follows;
Table 10.6 Calculation of Net Single Premium

Age Probability of × Amount of × PV of tk. 1 @ = PV of Annuity

Survival Annuity 3%

106 97/249 × 1,000 × 0.971 = 378.261

107 30/249 × 1,000 × 0.943 = 113.6145

108 6/249 × 1,000 × 0.915 = 22.04819

109 1/249 × 1,000 × 0.888 = 3.566265

110 0/249 × 1,000 × 0.863 = 0

Net Single Premium (NSP) tk. 128,855/249 =

tk. 517
• An annuity of tk. 1,000 to be paid annually is taken at the age of 70 and continues up to 5 years. • The
rate of interest is 2.5% per annum.
BQ
Table 10.7 Calculation of Net Single Premium

Age Probability of × Amount of × PV of tk. 1 @ = PV of Annuity

Survival Annuity 2.5%

71 553,332/577,445 × 1,000 × 0.975610 = 934.87

72 538,443/577,445 × 1,000 × 0.951814 = 871.04

73 502,843/577,445 × 1,000 × 0.928599 = 808.63

74 476,611/577,445 × 1,000 × 0.905951 = 747.75

75 449,841/577,445 × 1,000 × 0.883854 = 688.54

tk. 4,050.79