Ask the Actuary Question & Answers

This week’s medium article will be covering some of the questions asked in the recent #asktheactuary contest

1.Question: Suggest your view on use of decreasing term product in isolation i.e. when it is not linked to loan products?@RohitChandak11

Sumit’s Answer: In my view, it is an excellent product for those with increasing wealth and reducing liabilities. Put simply, this works well for those with liabilities following a pattern similar to an outstanding loan. For example, it fits well for a young salaried professional, who would need higher cover at the beginning of his career but the need of cover would reduce as he accumulates wealth and his children become independent.

2. Question: What are 5 main factors that can be implemented to increase the life insurance penetration in the rural areas? Do you think NGOs are effective intermediaries to promote and increase financial inclusion in the social and rural sector? @AnjaniChoudha11

Sumit’s Answer: For (micro)insurance to work, the prospective policyholders should be able to appreciate the value it brings. In my view, increasing awareness around utility of insurance could be the key. Affordability & simplicity should help too! Yes, NGOs could be effective intermediaries.

3. Question: Sites like policy bazar have coverage details and premium info. Similarly, do we have any comparison for the clauses of these different insurance policies e.g. some policies cover cancer some do not. So, how we can choose the best out of these? @rhitesh123

Sumit’s Answer: While most insurance policy comparators do the key benefit/feature comparison I am not particularly aware of the portal in question. Benefit comparison like coverage of cancer is generally part of such portals. On clauses, I haven’t come across any website that compares clauses. In my mind, that would result in information overload for most prospective policyholders and might hinder their decision to buy the cover. On clauses, I haven’t come across any website that compares clauses. In my mind, that would result in information overload for most prospective policyholders and might hinder their decision to buy the cover.

4. Question: Eligible life insurance policies can be traded in secondary market how do one can justify Insurable Interest in this (Considering the Insurance Laws)? @jasshu7

Sumit’s Answer: Thanks for the wonderful question! Insurable interest is a key requirement for any insurance product. The requirement is mandatory at the time when the contract is being bought for the first time from the insurers. However, when they are traded the requirement doesn’t hold. This has been clearly documented in “Grigsby v. Russlle” by the Supreme Court in the US. In Singapore as well there are no regulations around insurable interest as far as tradable insurance policies are concerned

5. What is the diff between whole life and universal life insurance products? What criteria should I use to select one over other?@devangpaliwal

Sumit’s Answer: Policy Duration: Whole Life (WL) covers for the entire life while Universal Life (UL) is for a pre-defined duration Flexibility: In UL one could change the death benefit and take premium holidays. WL typically doesn’t have such options. Investment risk: In WL the benefits are generally pre-defined while in UL the benefits depends on the performance of the underlying fund. This could also mean policyholder may not get his money back Choose the one that meets your needs & is aligned with your risk appetite.

Disclaimer: The article has been written with an aim to broadly explain an otherwise complicated and technical topic for readers with little or no insurance background. Hence, it doesn’t have finer details but is still broadly correct. The readers are recommended to take advise from their respective financial advisers before taking any financial decision.