Question

A life insurance company offers an increasing term assurance that provides a benefit payable at the end of the year of death of 10,000 in the first year, increasing by 100 on each policy anniversary. Calculate the EPV for a five year policy issued to a life aged 50 exact.

Answer 1

To calculate the EPV for a five-year policy issued to a 50-year-old individual, we need to determine the present value of each year's increasing benefit and sum them.

Step-by-step explanation:

The EPV (Expected Present Value) for a five-year policy issued to a 50-year-old individual can be calculated by summing the present values of the benefit payable at the end of each year of death. In this case, the benefit starts at $10,000 in the first year and increases by $100 on each policy anniversary.

To calculate the EPV, we need to determine the present value of each year's benefit using an appropriate discount rate. For example, if we assume a discount rate of 5%, the present value of the first year's benefit would be $10,000/1.05 = $9,523.81. The present value of the second year's benefit would be $10,100/1.05^2 = $9,118.52. Continuing this calculation for the remaining years, we can sum the present values to find the EPV.