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Old 06-15-2017, 12:39 PM
Coldaine Coldaine is offline
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Default ROP Disability Policy reserves

Good afternoon everyone.

I'm working on valuation for a product which provides standard long term disability benefits, with a partial return of premium at any policy anniversary upon election or all premiums at age 65 (with a claims offset)

For sake of example, lets just throw out 3,000 dollars a month, 60 day elimination, two year benefit period.
I calculate my standard active life disability reserve from the 85 CIDA table and call it a day there.

I also calculate a reserve for the ROP benefit, relatively straightforward as well.

The issue that's cropped up is: do I sum these reserves? Or do I just hold the higher one (ROP). Any claims the policyholder incurs offset the ROP, so as long as I hold enough to cover that I should be fine?

Let me know if any of you have done valuation on something similar.
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Old 06-15-2017, 07:33 PM
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Dick the Bruiser Dick the Bruiser is offline
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In the aggregate the claims offset will be capped and will not exceed the premium. So if prem paid to date is 5000 and a claim is 20000, only 5000 of ROP is offset. Typical to make an assumption as to the % of premium that will not be returned due to claims. That adj % is included in the ROP reserve calculation and the total reserve is the sum of the two.

The Adj % is based on the probability of having a claim (incidence) so it increases by duration
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