Pricing of Products I MCQs

Welcome to our comprehensive collection of Multiple Choice Questions (MCQs) on Pricing of Products I, 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 Pricing of Products I 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 Pricing of Products I mcq questions that explore various aspects of Pricing of Products I problems. Each MCQ is crafted to challenge your understanding of Pricing of Products I 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 Pricing of Products I MCQs are your pathway to success in mastering this essential IC 92 Actuarial Aspects of Product Development topic.

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Pricing of Products I MCQs | Page 2 of 13

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Q11.
What is the primary focus when using the formula method for pricing insurance products?

a.

Maximizing benefits for policyholders.

b.

Calculating present value of future payments.

c.

Ensuring diversity and complexity of benefits.

d.

Determining profit margins for shareholders.

Discuss
Answer: (b).Calculating present value of future payments. Explanation:The primary focus when using the formula method for pricing insurance products is calculating the present value of future payments.
Q12.
Why is the formula method not suitable for pricing unit-linked products with diverse benefits?

a.

It lacks discount factors for present value calculations.

b.

It cannot adjust premiums based on desired profits.

c.

It does not consider future cash flows.

d.

It relies solely on formulae without detailed benefit analysis.

Discuss
Answer: (d).It relies solely on formulae without detailed benefit analysis. Explanation:The formula method is not suitable for pricing unit-linked products with diverse benefits because it relies solely on formulae without detailed benefit analysis.
Q13.
What is the primary advantage of the cash flow method compared to the formula method for pricing insurance products?

a.

It requires less computational power.

b.

It provides a more accurate projection of future cash flows.

c.

It relies on fixed premium rates.

d.

It simplifies the determination of profit margins.

Discuss
Answer: (b).It provides a more accurate projection of future cash flows. Explanation:The primary advantage of the cash flow method compared to the formula method for pricing insurance products is that it provides a more accurate projection of future cash flows.
Q14.
Why has the cash flow method gained popularity in recent years?

a.

Due to advancements in computational power.

b.

Due to a decrease in complexity of insurance products.

c.

Due to a decrease in the need for accurate projections.

d.

Due to a decrease in the demand for insurance products.

Discuss
Answer: (a).Due to advancements in computational power. Explanation:The cash flow method has gained popularity in recent years due to advancements in computational power, allowing for more accurate projections of future cash flows.
Q15.
How does the cash flow method differ from the formula method in terms of computational approach?

a.

The cash flow method relies on fixed formulae.

b.

The cash flow method projects future cash flows and determines the best premium rate.

c.

The cash flow method requires less computational power.

d.

The cash flow method simplifies profit margin calculations.

Discuss
Answer: (b).The cash flow method projects future cash flows and determines the best premium rate. Explanation:The cash flow method differs from the formula method in that it projects future cash flows and determines the best premium rate based on those projections.
Q16.
What does the "cost of benefits" component of premium calculation primarily include?

a.

The total premium paid by policyholders.

b.

The pure premium that covers the amount of benefits provided.

c.

The administrative expenses incurred by the insurance company.

d.

The investment income earned from policyholder funds.

Discuss
Answer: (b).The pure premium that covers the amount of benefits provided. Explanation:The "cost of benefits" component of premium calculation primarily includes the pure premium that covers the amount of benefits provided by the insurance policy.
Q17.
In addition to the pure premium, what else is included in the "cost of benefits" component for traditional insurance products?

a.

Marketing expenses

b.

Present value of change in reserves

c.

Shareholder dividends

d.

Insurance agent commissions

Discuss
Answer: (b).Present value of change in reserves Explanation:In addition to the pure premium, the "cost of benefits" component for traditional insurance products includes the present value of change in reserves.
Q18.
How does the "cost of benefits" component differ for unit-linked products compared to traditional products?

a.

It includes additional charges deducted from policyholder funds.

b.

It covers only fixed sum assured amounts.

c.

It is not influenced by investment income.

d.

It excludes any considerations for reserves.

Discuss
Answer: (a).It includes additional charges deducted from policyholder funds. Explanation:The "cost of benefits" component for unit-linked products differs from traditional products by including additional charges deducted from policyholder funds, reflecting the change in funds due to deducted charges.
Q19.
What are procurement expenses primarily related to in insurance?

a.

Legal services

b.

Administrative tasks

c.

Commission payments and incentives

d.

Premium payments

Discuss
Answer: (c).Commission payments and incentives Explanation:Procurement expenses in insurance are primarily related to commission payments and incentives, usually tied to the premium.
Q20.
What are underwriting expenses associated with in insurance?

a.

Assessing the market demand

b.

Assessing the health and financial status of the insured

c.

Handling administrative tasks

d.

Resolving customer complaints

Discuss
Answer: (b).Assessing the health and financial status of the insured Explanation:Underwriting expenses in insurance are associated with assessing the health status of the life assured and the financial status of the policyholder.
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