Nondeduction Reserve

[BTBU]

In the book of VLIL (4 ed), it is said that the nondeduction reserve for n-year endorsement is tV(n-year term)*(m-1)/2m*P(n-year endorsement). Sorry that I cannot understand this formula and there is no explanation about it in the book. Could anyone help me with it please?

[Gandalf]

Surely you mean "endowment" both places instead of "endorsement".

It is a term insurance reserve because there is a benefit (not deducting the remainder of the premium) only if death occurs before a certain date (the endowment date). Death benefits for a limited period only indicate term insurance. (and it would not be an endowment reserve, which also includes death coverage for only a limited period, because there is no corresponding benefit if the insured survives to the end).

How much benefit is provided upon death? On average (m-1)/2m * the total premium will not be deducted. So you need a term insurance reserve for that much benefit.

Maybe the formula could be slightly more sophisticated, but that's the idea.

[BTBU]

Yeah, a serious typo. SHould be endowment. Seeing too many endorsements causes this error perhaps :)