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Old 04-22-2019, 04:53 PM
Mathdube2 Mathdube2 is offline
Join Date: Oct 2018
Posts: 40

Originally Posted by Latitude30 View Post
Very important question.

For a Long Duration contract with a Year 1 claim of $5,000
5% interest rate
Lapses are 20% each year
Premiums paid beginning of the year
Losses occur mid-year

How would you discount the year 1 cash flow ?
Would it be $5,000 times (1+.8)/2 times (1.05)^-0.5?

Or would it be $5,000*(1)*(1.05^-0.5)?

I notice for a disability question ignoring an elimination period, the former is correct?

But long duration annuity questions the premium lapse is set equal to the claim’s regardless of when during the year the loss comes in. Why?
Would you lapse in the middle of the year if you paid for the whole year?
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