Premium Bases Persistency Rates MCQs

Welcome to our comprehensive collection of Multiple Choice Questions (MCQs) on Premium Bases Persistency Rates, a fundamental topic in the field of IC 92 Actuarial Aspects of Product Development. Whether you're preparing for competitive exams, honing your problem-solving skills, or simply looking to enhance your abilities in this field, our Premium Bases Persistency Rates MCQs are designed to help you grasp the core concepts and excel in solving problems.

In this section, you'll find a wide range of Premium Bases Persistency Rates mcq questions that explore various aspects of Premium Bases Persistency Rates problems. Each MCQ is crafted to challenge your understanding of Premium Bases Persistency Rates principles, enabling you to refine your problem-solving techniques. Whether you're a student aiming to ace IC 92 Actuarial Aspects of Product Development tests, a job seeker preparing for interviews, or someone simply interested in sharpening their skills, our Premium Bases Persistency Rates MCQs are your pathway to success in mastering this essential IC 92 Actuarial Aspects of Product Development topic.

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Premium Bases Persistency Rates MCQs | Page 1 of 7

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Q1.
What does persistency refer to in the context of life insurance?

a.

The volume of business that a life insurance company acquires

b.

The percentage of insurance policies remaining in force without lapsing or being replaced by policies of other insurers

c.

The frequency of policyholder withdrawals from the unit fund

d.

The number of new policies sold by an insurance agent

Discuss
Answer: (b).The percentage of insurance policies remaining in force without lapsing or being replaced by policies of other insurers Explanation:Persistency in life insurance refers to the percentage of insurance policies that remain in force without lapsing or being replaced by policies of other insurers. It indicates the ability of the insurer to retain its policyholders over time.
Q2.
How is the withdrawal rate related to persistency?

a.

It is unrelated to persistency

b.

It is inversely proportional to persistency

c.

It is directly proportional to persistency

d.

It is equal to the persistency ratio

Discuss
Answer: (b).It is inversely proportional to persistency Explanation:The withdrawal rate, which represents the percentage of insurance policies withdrawn by policyholders, is inversely proportional to persistency. As persistency decreases, withdrawal rates increase, and vice versa.
Q3.
Which of the following is excluded when calculating withdrawal rates?

a.

Voluntary policy lapses or surrenders

b.

Death benefits paid out to beneficiaries

c.

Maturities of insurance policies

d.

Agent commissions

Discuss
Answer: (b).Death benefits paid out to beneficiaries Explanation:Withdrawal rates consider voluntary policy lapses or surrenders, partial withdrawals, and policy changes, but exclude events such as death benefits paid out to beneficiaries or policy maturities.
Q4.
Why is persistency considered an important metric in insurance?

a.

It reflects the insurer's investment strategy

b.

It indicates whether customers renew their policies or quit them midway

c.

It determines the frequency of agent commissions

d.

It reflects the insurer's profitability

Discuss
Answer: (b).It indicates whether customers renew their policies or quit them midway Explanation:Persistency in insurance indicates whether customers renew their policies or quit them midway, reflecting the quality of sales practices and the long-term sustainability of insurance products.
Q5.
How do withdrawal rates influence the pricing of insurance products?

a.

They have no impact on pricing

b.

They are used to determine agent commissions

c.

They are considered in the profit testing of premiums

d.

They are used to calculate policy benefits

Discuss
Answer: (c).They are considered in the profit testing of premiums Explanation:Withdrawal rates are considered in the profit testing of premiums to ensure that the pricing reflects the insurer's profitability and meets minimum profit margin criteria, preventing overcharging or undercharging of premiums.
Q6.
In which approach to pricing are withdrawal rates considered a crucial assumption?

a.

Formula approach

b.

Commission-based approach

c.

Risk-based approach

d.

Cash flow approach

Discuss
Answer: (d).Cash flow approach Explanation:Withdrawal rates are crucial assumptions in the cash flow approach to pricing insurance products, as they directly impact the profitability of contracts and must be accounted for in premium calculations.
Q7.
How do withdrawal rates impact profits in insurance contracts?

a.

They have no impact on profits

b.

They always increase profits

c.

They can either positively or negatively affect profits

d.

They only affect asset shares

Discuss
Answer: (c).They can either positively or negatively affect profits Explanation:Withdrawal rates can either positively or negatively impact profits in insurance contracts, depending on factors such as the asset share vs. surrender value at the time of withdrawal and the duration of the withdrawal.
Q8.
What is the asset share of a life insurance policy?

a.

The total premium paid by the policyholder

b.

The accumulated amount for the policy until the withdrawal date

c.

The sum assured of the policy

d.

The surrender value of the policy

Discuss
Answer: (b).The accumulated amount for the policy until the withdrawal date Explanation:The asset share of a life insurance policy refers to the accumulated amount for the policy until the withdrawal date, representing the policyholder's share of the insurer's assets.
Q9.
How does the excess of asset share over surrender value impact profits?

a.

It decreases profits

b.

It has no impact on profits

c.

It increases profits

d.

It leads to policy termination

Discuss
Answer: (a).It decreases profits Explanation:The excess of asset share over surrender value, at the time of withdrawal, represents the profit earned on the contract. If this profit is less than expected, it decreases profits, impacting the intended profit margin negatively.
Q10.
What effect do withdrawal terms have on profit margins?

a.

They always decrease profit margins

b.

They always increase profit margins

c.

They have no effect on profit margins

d.

They can either increase or decrease profit margins

Discuss
Answer: (d).They can either increase or decrease profit margins Explanation:Withdrawal terms can either increase or decrease profit margins depending on whether they recoup all future profits or lead to a loss of future profits when a policy is withdrawn.
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