Interview Ques of CT5

[aparnaParticipant]

Hii guyz,

I have a query. Kindly help me with this.

Actually, once in my interview my interviewer asked me that suppose you have your own insurance business so if the interest rates are increasing then in what way you will pay the annuities to policyholder like in due or in arrear? Explain.

But i didn’t understand the exact concept behind this please help me if anyone has any idea about this.

Thanks

Aparna Malhotra

Sent from my A1601 using Actuarial Info mobile app

Sent from my A1601 using Actuarial Info mobile app

[kritikavijParticipant]

I think it will be in advance (due).

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[nancydhingraParticipant]

In any circumstance, i think, the insurer would prefer to pay in arrear. As in the case of a whole life annuity, the value of annuity due is always greater than annuity arrear (at a particular age).

This is because of added factor, ie the probabity of survival.

Annuity due has one payment assured whereas arrear does not

I am not sure of my ans though. If i am wrong , do correct me

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[shreyanshhParticipant]

The present value of annuity arrear will always be less than advance annuity, be it whole life annuity, guaranteed annuity, term annuity.

So as an insurer I will prefer to pay in arrear as there will be a Delay of one year in the payment.

[harsh61998Participant]

Another reason that I feel why the insurance company would prefer to go for annuity in arrear is that the company gets to earn interest for that one extra period as compared to an annuity due.

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