Life Insurance

Net Single Premium

(Death & Endowment)

The fundamental difference between a life annuity and life

insurance is that a life annuity pays to an annuitant whom the policy
stipulates to be alive, whereas life insurance pays for the survivors of
the insured upon her death. So, the life insurance policy stipulates
the death of the insured before paying any benefits. The insured
would pay either a single premium or annual premiums in purchasing
the life insurance policy. The insured or the policyholder’s age would
be determined by her age at the time of purchase: specifically, her
age on the nearest birthday to the formal policy date from which the
next years start to count. As we did with life annuities, our
calculations skip the operating costs or loadings that would normally
be added. We consider only the value of the net premium, which
would be equal to the present value of the face of the policy.
Therefore, in the case of breaking down the net single premium into
annual installments, the present value of all the premiums would be
equal to the net single premium. There are three major types of life
insurance policies: the whole life policy, the term policy, and the
endowment policy.

1- WHOLE LIFE INSURANCE POLICY

According to a whole life insurance policy, the insurance
company is obligated to pay the face value of the policy to the
survivors of the policyholder upon his death, whenever it occurs. The
benefits are usually paid at the end of the year in which the insured’s
death occurs. As we did with the life annuities, we construct our
formulas based on a $1.00 present value so that we can multiply it
by the face value in question. The net single premium (𝐴𝑥 ) for this

1
policy is the sum of the mathematical expectations that the face
value would be paid to the policy beneficiaries. The mathematical
expectation is the product of the probability that the insured would
die (𝑞𝑥 ), and the present value of the policy benefits (𝑣 𝑛 ).

𝑀𝑥
𝑅. 𝐴1𝑥 = 𝑅.
𝐷𝑥

Example 1
What would be the net single premium for a whole life
insurance policy for Ali, who is 49 years old and wants his family to
receive $200,000 after his death?

Solution
𝑥 = 49 𝑅 = 200,000
𝑀𝑥
𝑅. 𝐴1𝑥 = 𝑅.
𝐷𝑥
𝑀49
𝑅. 𝐴149 = 200,000 ×
𝐷49
1,473,623
𝑁𝑆𝑃 = 200,000 ×
2,633,069
𝑁𝑆𝑃 = 111,932

2- DEFERRED WHOLE LIFE POLICY

A deferred whole life insurance policy is based on the
probability that the insured will not die until after a certain period of
time (𝑚), called the deferment period. The net single premium of
1
this policy for $1.00 is denoted by 𝑚|𝐴𝑥 and determined by:
2
 𝑀𝑥+𝑚
𝑅. 𝑚\𝐴1𝑥 = 𝑅.
𝐷𝑥

Example 2
Rana is 35. She wants to buy a $30,000 life insurance policy that
would be activated only if she dies when she is 40 or older. How
much would her net single premium be?
Solution
𝑚 = 15
𝑅 = 30,000
35 40
(𝑥) (𝑥 + 𝑚)

The period of deferment (𝑚) is 5 years.

𝑥 = 35 𝑅 = 30,000 𝑥 + 𝑚 = 40
𝑀𝑥+𝑚
𝑅. 𝑚\𝐴1𝑥 = 𝑅.
𝐷𝑥
𝑀40
𝑅. 5\𝐴135 = 30,000 ×
𝐷35
1,607,760
𝑁𝑆𝑃 = 30,000 ×
3,949,851
𝑁𝑆𝑃 = 12,211.3

3
 3- TERM LIFE INSURANCE POLICY
A term life insurance policy would pay the face value of the
policy to the survivors only when the insured dies within a specified
period of time called the term of the policy (𝑛). Technically, the net
single premium of this policy (𝐴1𝑥 : 𝑛 ) is viewed as the difference
between the costs of whole life insurance (𝐴1𝑥 ) and deferred whole
1
life insurance (𝑚\𝐴𝑥 ). This takes into account the replacement of
the symbol (𝑚) with the symbol (𝑛).

𝑀𝑥 − 𝑀𝑥+𝑛
𝑅. 𝐴1𝑥 : 𝑛 = 𝑅.
𝐷𝑥

Example 3
Farida is 57. She would like to buy a 13-year term life insurance
policy of $50,000. How much would it cost her?

Solution

𝑛 = 13
57 𝑅 = 50,000 70
(𝑥) (𝑥 + 𝑛)

𝑥 = 57 𝑛 = 13 𝑅 = 50,000
𝑀𝑥 − 𝑀𝑥+𝑛
𝑅. 𝐴1𝑥 : 𝑛 = 𝑅.
𝐷𝑥
𝑀57 − 𝑀70
𝑅. 𝐴157 : 13 = 50,000 ×
𝐷57

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 1,282,275 − 773,392
𝑁𝑆𝑃 = 50,000 ×
1,984,060
𝑁𝑆𝑃 = 12,824.3

4- DEFERRED TERM LIFE INSURANCE POLICY

A deferred term life policy, sometimes referred to as
a deferred term insurance policy, is a type of life insurance that
provides coverage for a specific period, but with a deferred start
date. In a traditional term life policy, coverage begins immediately
upon policy issuance. However, in a deferred term life policy, the
coverage start date is postponed to a later time.

𝑀𝑥+𝑚 − 𝑀𝑥+𝑚+𝑛
𝑅. 𝑚\𝐴1𝑥 : 𝑛 = 𝑅.
𝐷𝑥

Example 4
Someone aged 40 year, buys a deferred term policy contains
the following benefits, 50,000 L.E., if he dies in between 55-75 years,
Find the net single premium.
Solution

𝑚 = 55 − 40 = 15 𝑛 = 75 − 55 = 20
𝑅 = 50,000
40 55 75
(𝑥) (𝑥 + 𝑚) (𝑥 + 𝑚 + 𝑛)

𝑀𝑥+𝑚 − 𝑀𝑥+𝑚+𝑛
𝑅. 𝑚\𝐴1𝑥 : 𝑛 = 𝑅.
𝐷𝑥

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 𝑀55 − 𝑀75
𝑅. 15\𝐴140 : 20 = 50,000 ×
𝐷40
𝑀40+15 − 𝑀40+15+20
𝑁𝑆𝑃 = 50,000 ×
𝐷40
𝑀55 − 𝑀75
𝑁𝑆𝑃 = 50,000 ×
𝐷40
1,338,046 − 532,418
𝑁𝑆𝑃 = 50,000 ×
3,441,765
𝑁𝑆𝑃 = 11,703.7

Examples:

Example 5
A person of age 43 years old bought the whole life insurance policy,
under which the insurance company will pay $ 100,000 upon death
when he dies. Find the net single premium.

Solution
Since: Whole life policy
𝑥 = 43 𝑅 = 100,000
𝑀𝑥
𝑅. 𝐴1𝑥 = 𝑅.
𝐷𝑥
𝑀43
𝑅. 𝐴143 = 100,000 ×
𝐷43
1,570,142
𝑁𝑆𝑃 = 100,000 × = 49,699.4
3,159,280

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Example 6
A person of age (42) years old, bought deferred whole life insurance
policy, the insurer will pay 35,000 (L.E), it a deferred life policy of
period (18) years. calculate the net single premium for this policy.

Solution
𝑚 = 18
𝑅 = 35,000
42 60
(𝑥) (𝑥 + 𝑚)

"Deferred whole life insurance"

𝑥 = 42 𝑚 = 18 𝑅 = 35000

𝑀𝑥+𝑚
𝑅. 𝑚\𝐴1𝑥 = 𝑅.
𝐷𝑥
𝑀42+18
𝑅. 18\𝐴142 = 35000 ×
𝐷42
𝑀60
𝑅. 18\𝐴142 = 35000 ×
𝐷42
1,187,445
𝑁𝑆𝑃 = 35000 ×
3,251,822
𝑁𝑆𝑃 = 12,780.7

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Example 7
Find the net single premium for term life insurance policy for a
person age (27) years old, to guarantee his inheritance a face
amount of 70,000 L.E. in case he dies at any moment before he is
reaching the age (50) years old.

Solution

𝑛 = 50 − 27 = 23
27 𝑅 = 70,000 50
(𝑥) (𝑥 + 𝑛)

𝑀𝑥 − 𝑀𝑥+𝑛
𝑅. 𝐴1𝑥 : 𝑛 = 𝑅.
𝐷𝑥
𝑀27 − 𝑀50
𝑅. 𝐴127 : 23 = 70,000 ×
𝐷27
1,734,963 − 1,454,100
𝑁𝑆𝑃 = 70,000 ×
4,897,023
𝑁𝑆𝑃 = 4014.8

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ENDOWMENT INSURANCE POLICY
The endowment insurance is, in fact, a combination of a term
life insurance and a pure endowment where both have the same
term (n). This mix is designed to assure the receipt of the policy
benefits whether the insured dies or lives throughout the specified
term. Therefore, the face value of the policy would be paid at any
rate. It would be paid to the insured if she survives until the end of
the term specified, and it would be paid to the survivors if she dies
within the term specified. Therefore, the net single premium of the
endowment insurance policy (𝐴𝑥 : 𝑛 ) would be the sum of the net
1
single premium for the 𝑛 − 𝑡𝑒𝑟𝑚 life insurance (𝐴𝑥 : 𝑛 ), and the net
1
single premium for the 𝑛 − 𝑡𝑒𝑟𝑚 pure endowment (𝐴𝑥 : n ):

1
𝐴𝑥 : 𝑛 = 𝐴1𝑥 : 𝑛 + 𝐴𝑥 : n

(𝑀𝑥 − 𝑀𝑥+𝑛 ) 𝐷𝑥+𝑛

= +
𝐷𝑥 𝐷𝑥
(𝑀𝑥 − 𝑀𝑥+𝑛 ) + 𝐷𝑥+𝑛
=
𝐷𝑥

(𝑀𝑥 − 𝑀𝑥+𝑛 ) + 𝐷𝑥+𝑛

𝐴𝑥 : 𝑛 =
𝐷𝑥

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 a) Ordinary Endowment Contract
𝐹𝑎𝑐𝑒 𝑎𝑚𝑜𝑢𝑛𝑡 𝑖𝑛 𝑐𝑎𝑠𝑒 𝑜𝑓 𝑙𝑖𝑓𝑒
= 𝐹𝑎𝑐𝑒 𝑎𝑚𝑜𝑢𝑛𝑡 𝑖𝑛 𝑐𝑎𝑠𝑒 𝑜𝑓 𝑑𝑒𝑎𝑡ℎ
(𝑴𝒙 − 𝑴𝒙+𝒏 ) + 𝑫𝒙+𝒏
𝑨𝒙 : 𝒏 = 𝑹 ×
𝑫𝒙
b) Double Endowment Contract
𝐹𝑎𝑐𝑒 𝑎𝑚𝑜𝑢𝑛𝑡 𝑖𝑛 𝑐𝑎𝑠𝑒 𝑜𝑓 𝑙𝑖𝑓𝑒
= 2 𝐹𝑎𝑐𝑒 𝑎𝑚𝑜𝑢𝑛𝑡 𝑖𝑛 𝑐𝑎𝑠𝑒 𝑜𝑓 𝑑𝑒𝑎𝑡ℎ
(𝑴𝒙 − 𝑴𝒙+𝒏 ) + 𝟐 𝑫𝒙+𝒏
𝑨𝒙 : 𝒏 = 𝑹 ×
𝑫𝒙
c) Half Endowment Contract
𝐹𝑎𝑐𝑒 𝑎𝑚𝑜𝑢𝑛𝑡 𝑖𝑛 𝑐𝑎𝑠𝑒 𝑜𝑓 𝑙𝑖𝑓𝑒
1
= 𝐹𝑎𝑐𝑒 𝑎𝑚𝑜𝑢𝑛𝑡 𝑖𝑛 𝑐𝑎𝑠𝑒 𝑜𝑓 𝑑𝑒𝑎𝑡ℎ
2
𝟐(𝑴𝒙 − 𝑴𝒙+𝒏 ) + 𝑫𝒙+𝒏
𝑨𝒙 : 𝒏 = 𝑹 ×
𝑫𝒙

Example 8
Fares is 46. He has just purchased a $65,000 endowment policy
with a 15-year term. How much would this policy cost him?

Solution
(𝑴𝒙 − 𝑴𝒙+𝒏 ) + 𝑫𝒙+𝒏
𝑨𝒙 : 𝒏 = 𝑹 ×
𝑫𝒙
(𝑴𝟒𝟔 − 𝑴𝟔𝟏 ) + 𝑫𝟔𝟏
𝑵𝑺𝑷 = 𝟔𝟓, 𝟎𝟎𝟎 ×
𝑫𝟒𝟔
(𝟏, 𝟓𝟐𝟓, 𝟖𝟖𝟖 − 𝟏, 𝟏𝟓𝟐, 𝟕𝟐𝟐) + 𝟏, 𝟔𝟕𝟐, 𝟑𝟖𝟕
𝑵𝑺𝑷 = 𝟔𝟓, 𝟎𝟎𝟎 ×
𝟐, 𝟖𝟗𝟎, 𝟓𝟎𝟎
𝑵𝑺𝑷 = 𝟒𝟓𝟗𝟗𝟗. 𝟑

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Example 9
1- Find NSP for ordinary endowment ins. policy on a person's
life age 34 years old for endowment period of 16 years, and
the face amount of 50000 L.E.
2- Find NSP for double endowment ins. policy on a person's life
age 34 years old for endowment period of 16 years, and the
face amount of 50000 L.E., but in case of survival (2R)
100000 L.E.
3- Find NSP for half endowment ins. policy on a person's life age
34 years old for endowment period of 16 years, and the face
amount in the case of death 2R = 100000 L.E., but in case of
survival (R = 50000 L.E.)

Solution
1- Ordinary Endowment Contract
(𝑀𝑥 − 𝑀𝑥+𝑛 ) + 𝐷𝑥+𝑛
𝐴𝑥 : 𝑛 = 𝑅 ×
𝐷𝑥
(𝑀34 − 𝑀50 ) + 𝐷50
= 50000 ×
𝐷34
(1,668,959 − 1,454,100) + (2,549,324)
= 50000 ×
4,058,337
𝑁𝑆𝑃 = 34055.6

2- Double Endowment Contract

(𝑀𝑥 − 𝑀𝑥+𝑛 ) + 2𝐷𝑥+𝑛

𝐴𝑥 : 𝑛 = 𝑅 ×
𝐷𝑥
(𝑀34 − 𝑀50 ) + 2 𝐷50
= 50000 ×
𝐷34

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 (1,668,959 − 1,454,100) + 2(2,549,324)
4,058,337
𝑁𝑆𝑃 = 65464

3- Half Endowment Contract

2(𝑀𝑥 − 𝑀𝑥+𝑛 ) + 𝐷𝑥+𝑛

𝐴𝑥 : 𝑛 = 𝑅 ×
𝐷𝑥
2(𝑀34 − 𝑀50 ) + 𝐷50
= 50000 ×
𝐷34
2(1,668,959 − 1,454,100) + (2,549,324)
4,058,337
𝑁𝑆𝑃 = 36702

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 SUMMARY
In these types of contracts, the event insured against, the
death if this occurs during the contract period of the life assured,
either within a limited number of years or without any such limit.
The ordinary whole life insurance contract
𝑀𝑥
𝑅. 𝐴1𝑥 = 𝑅.
𝐷𝑥
Deferred whole life insurance contract
𝑀𝑥+𝑚
𝑅. 𝑚\𝐴1𝑥 = 𝑅.
𝐷𝑥
Temporary death insurance contract (term life insurance)
𝑀𝑥 − 𝑀𝑥+𝑛
𝑅. 𝐴1𝑥 : 𝑛 = 𝑅.
𝐷𝑥
Deferred term life insurance contract
𝑀𝑥+𝑚 − 𝑀𝑥+𝑚+𝑛
𝑅. 𝑚\𝐴1𝑥 : 𝑛 = 𝑅.
𝐷𝑥

An endowment contract is a type of life insurance policy that

combines elements of insurance protection and savings or investment. It
is designed to provide a lump sum payment to the policyholder at a
specified maturity date or to the beneficiary in the event of the
policyholder's death, whichever occurs first.
Ordinary Endowment Double Endowment
Half Endowment Contract
Contract Contract

𝐴𝑥 : 𝑛 𝐴𝑥 : 𝑛 𝐴𝑥 : 𝑛
=𝑅 =𝑅 =𝑅
(𝑀𝑥 − 𝑀𝑥+𝑛 ) + 𝐷𝑥+𝑛 (𝑀𝑥 − 𝑀𝑥+𝑛 ) + 2𝐷𝑥+𝑛
× 2(𝑀𝑥 − 𝑀𝑥+𝑛 ) + 𝐷𝑥+𝑛
𝐷𝑥 × ×
𝐷𝑥 𝐷𝑥

13