1

Chapters 7 & 8 - Life , Death & Endowment Policies

NSP NAP
Life Pure
Policies Endowment

Whole Life Due Ordinary

Annuity

Deferred Due Ordinary Due Ordinary

Whole Life
Annuity

Temporary Due Ordinary

Life Annuity NSP

Deferred Due Ordinary Due Ordinary

Temporary
Life Annuity
p
m
ca

Death Death whole NAP/O NAP/L

s

Policies
es
Zn

Deferred
Bi

Death whole

Term
Insurance

Deferred
Term
Insurance

Endow Ordinary
ment
Double
Insuran
ce Half

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Use the following commutation table to answer questions 1 – 12:

1) A policy issued to a man aged 35, promises to pay $200,000 if he dies before reaching age
45. The net single premium equals:
a. $ 5224 b. $ 2082.05 c. $1878.62 d. None of the above.
Term insurance
200,000 200,000 = $2082.05
2) A policy issued to a man aged 30, promises to pay $200,000 if he dies after reaching age 35
p
m
but before 45. The net single premium equals:
ca

b. $ 2082.05 b. $ 490 c. $1878.62 d. None of the above.

Deferred Term Insurance
s
es

= $1878.62
Zn

3) Find the net single premium for a whole life annuity due of $1,000, issued to a man aged 35.
c. $ 22774 b. $ 23,774 c. $32275.9 d. None of the above.
Bi

Whole life annuity due

= 1000 . 1000 = $32275.9
4) What is the net single premium for a ten-year temporary life annuity of $ 1,000 per year for
a person aged 30 if the first payment is due now?
a. $5224 b. $45915 c. $ 8892.93 d. None of the above.
Temporary life annuity due
= 1000
5) A person aged 30 wishes to purchase a whole life annuity due, that will pay $3,000 a year
for life. The first payment is due at age 55. (a) Find the net single premium of the annuity.
(b) Find the 10-years payment net annual premium.
a. $42745.07 b. $7758 c. $5758 d. $ 8,758
Deferred whole life annuity due m = 55 – 30 = 25
a) = 3000 = $42735.07
y = 10
b) NAP/L = $2190.57

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6 ) A policy issued to a person aged 30 provides the following: (a) $200,000 if he survives to
reach the exact age 50, (b) $100,000 if he dies before age 50. What is the net single premium?
a. $ 62,005 b. $201,942 c. $118,411 d. $67,603
Double endowment policy
= 100,000 = 100,000 $201,942
7) if a person aged 30 years buys an insurance contract in which he receives $100,000 if he
survives 20 years. Find the net annual premium.
$ 22774 b. $3,618.83 c. $3970.22 d. None of the above
Pure endowment policy
$3970.22
8) A $100,000, 20-year pure endowment insurance policy was bought by someone aged 30.
Find the 15-payment net annual premium
a. $ $5038.26 b. $3,618.83 c. $4,518.7 d. None of the above
Pure endowment policy
$5038.26
9) A $100,000, 20-year term insurance policy was bought by someone aged 30. Find the net
p
annual premium.
m
a. $ 1000 b. $117.42 c. $ 359.18 d. $ 448.5
ca

Term insurance
s

= 100,000 100,000 $117.42

es
Zn

10) A $100,000, 20-year term insurance policy was bought by someone aged 30. Find the 15-
payment net annual premium.
Bi

a. $ 1000 b. $296 c. $ 359.18 d. $149

Term insurance
= 100,000 100,000 $149

11) A policy issued to a person aged 30 provides the following: (a) $100,000 if he survives to
reach the exact age 50, (b) $200,000 if he dies before age 50. What is the net annual premium?
a. $6282 b. $ 448.5 c. $4337.21 d. $3978
Half endowment policy
= 100,000 = $6282
12) A policy issued to a person aged 30 provides the following: (a) $100,000 if he survives to
reach the exact age 50, (b) $200,000 if he dies before age 50. Find the 15-payment net annual
premium.
a. $5415.71 b. $7972 c. $4337.21 d. $3978
Half endowment policy
= 100,000 = $7972

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Use the following commutation table to answer questions 13 – 24

Age X DX NX MX
0 100000.00 1664794.68 94233.66
5 72481.80 1227973.94 69507.96
10 53997.89 904739.10 51211.65
15 40238.96 663822.79 37574.87
20 29883.37 484519.81 27425.65
25 22146.75 351486.75 19895.48
30 16417.71 252900.70 14315.13
35 12161.59 179821.07 10178.55
40 8975.07 125748.60 7117.85
45 6567.71 85951.37 4865.17
50 4729.55 56988.31 3225.75
55 3336.63 36282.55 2053.73
60 2280.27 21833.77 1235.87
65 1486.01 12110.79 685.52
70 905.34 5920.45 335.12
75 505.65 2256.41 127.72
13) Find the net single premium for the following separate policies:
A. A policy under which the insured aged 25 years will receive 5000 due if he reached age
p
45.
m
B. A person aged 45 purchased an insurance policy under which the insurer will pay 10,000
ca

upon death.
s

C. A person aged 45 purchased an insurance policy under which the insurer will pay 10,000
es

upon death after reaching 50.

Zn

D. A person aged 35 purchased an insurance policy under which the insurer will pay 30,000
if he dies between age 55 and 65
Bi

Solution:

(A) Pure Endowment

x = 25 n = 20 x + n = 45 R = 5000

(B) Death whole X = 45 R = 10,000

(C) Deferred Death whole

x = 45 m=5 x + m = 50 R = 10,000

(D) Deferred term life insurance

X = 35 x + m = 45 x + m + n = 55 R = 30,000

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14) A policy issued to a husband aged 40, promises to pay 15,000 if he dies after reaching 45.
Find the net single premium.
Solution:
Deferred Death whole
X = 40 m=5 x + m = 45 R = 15,000

15) A policy issued to a man now aged 30 provides the following:

A. $30,000 if he survives to reach the exact age 40
B. $30,000 if he dies before age 40
C. What is the name of this policy? Find the net single premium.
Solution:
Ordinary Endowment Policy
X = 30 n = 40 – 30 = 10 x + n = 40 R = 30,000

16) Find the net single premium for a policy issued to a person aged 40 provides the following:
A. 3000 if the insured dies before reaching age 50
p
m
B. 6000 if he dies after reaching 50 but before 60
C. 1500 if he is alive at age 60
ca

Solution:
s
es

(A) Term insurance

Zn

n = 50 - 40 = 10 years R = 3,000 X = 40 x + n = 50
Bi

(B) Deferred term life insurance

R = 6,000 X = 40 x + m = 50 x + m + n =60

(C) Pure endowment

n = 60 – 40 = 20 years R = 1,500 X = 40 x + n = 60

17) An individual at the age 40 buys half endowment policy that provides his wife 30,000 if he
dies before 60. Find NSP
Solution:
Half endowment policy
R = 15,000 X = 40 n = 20 x + n = 60

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18) A father paid $41,228.79 for an insurance contract for his daughter, now aged five. The face
amount will be payable to his daughter if and when she reaches age 20.
How much will the daughter receive if she is then alive?
(a) 90,000 (b) 100,000 (c) 110,000 (d) 120,000

Solution:
Pure Endowment
X= 5 R = ?? n = 20 – 5 = 15 x + n = 20 NSP = $41,228.79

19) A policy issued to a woman aged 25 provides the following: (1) 2,000 if she survives 20
years more, (2) 5,000 if she reaches the exact age 55. Calculate the Net Single Premium.
(a) 1364 (b) 1346 (c) 4316 (d) 6143

Solution:
p
m
(1) 2,000 if she survives 20 years more (X = 25 / R = 2,000 / n=20 / Pure Endowment)
ca
s
es

(2) 5,000 if she reaches the exact age 55 (X = 25 / x + n = 55 / R = 5,000 / Pure Endowment)
Zn
Bi

=
‫ ؞‬NSP = 593.108 + 753.3 = $1346 (a)
20) Find the net single premium for a policy under which the insured aged 25 years will
receive 5000 if he reached age 45.
(a) 1843 (b) 1483 (c) 3841 (d) 4831

Solution:
Pure endowment
X = 25 x + n = 45 R = 5000
(b)
21) Find the net single premium for a person aged 45 purchased an insurance policy under
which the insurer will pay 10,000 upon death.
(a) 7408 (b) 4708 (c) 8704 (d) 8740
Solution:
Death whole life R = 10,000 X = 45
(a)

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22) Find the net single premium for a person aged 45 purchased an insurance policy under
which the insurer will pay 10,000 upon death after reaching 50.
(a) 9412 (b) 9214 (c) 1294 (d) 4912

Solution:
Deferred Death whole X = 45 x + m = 50 R = 10,000
(d)
23) Find the net single premium for a person aged 35 purchased an insurance policy under
which the insurer will pay 30,000 if he dies between age 55 and 65
(a) 3735 (b) 3375 (c) 3573 (d) 3357

Solution:
Deferred term life insurance X = 35 x + m = 55 x = m + n = 65

24) A policy issued to a young man now aged 20 provides that the insurance company will pay:
 $4,000 for his wife if he dies before age 50
 $8,000 for his son if he dies before the same age
p
m
 $12,000 if he survives to attain the exact age 50
ca

Use the above information to solve the following questions:

a-The name of policy is:
s
es

(a) Term Death (b) Ordinary Endowment

(c) Pure Endowment (d) Whole life death
Zn

Solution:
Bi

In case of life: R = 12,000

In case of death: R = 4,000 + 8,000 = 12,000
So, this is an ordinary endowment policy
b-How much is the net single premium:
(a) 9718 (b) 9781 (c) 7918 (d) 7981
Solution:
X =20 x + n = 50 n = 50 – 20 = 30 R = 12,000

c-How much gross single premium if you know that loading ratio is 27%
(a) 11312 (b) 12312 (c) 13312 (d) 14312

Solution:

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Use the following commutation table to answer questions 25 – 28:

X DX NX Cx MX
30 4519 115338 10 1707
35 3950 93907 10 1659
40 3442 75195 12 1608
45 2979 58928 16 1541
50 2549 44904 21 1454
55 2143 32979 27 1338
60 1750 23056 34 1187
65 1367 15078 42 998
70 993 8999 48 773
25) An individual aged 30 purchases a policy provides a certain amount if he survives to attain
the exact age 65. If the net single premium is 11855.5, find the face amount of insurance.
(a) 93192 (b) 39192 (c) 23919 (d) 32919

Solution:
Pure endowment
n = 65 – 30 = 35 R = ???? X = 30 x + n = 65 p NSP = 11,855.5
m
ca
s
es

26) An individual aged 30 purchases a life insurance contract under which the insurer
promises to pay 50,000 if he dies between ages 50 and 70. Find the net single premium.
Zn

(a) 7535 (b) 5735 (c) 2357 (d) 3275

Bi

Solution:
Deferred term life insurance
n = 70 – 50 = 20 m = 50 - 30 = 20 R = 50,000 X = 30 x+m = 50 x+m+n=70

27) A 150,000 Death whole was bought by somebody aged 45. Find the ordinary net annual
premium and find the 10-payment net annual premium.
(a) 9880 (b) 9808 (c) 8809 (d) 8908
Solution:
Death whole R = 150,000 X = 45

Ordinary

Limited
x = 45 y = 10 x + y = 55 R = 150,000

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28) A life insurance contract issued to a husband aged 35, promises to pay 100,000 to his wife
if he dies within 15 years or the husband himself may receive the same amount if he survives
to attain the exact age 50.

(1) Find the net single premium.

(a) 72269 (b) 69722 (c) 69227 (d) 72692

Solution:
NSP - Ordinary Endowment Policy
X = 35 x + n = 50

(2) Find the 10 years payment net annual premium.

(a) 7226 (b) 6972 (c) 6922.4 (d) 7873.3
p
m
Solution:
ca

10 years NAP - Ordinary Endowment Policy

s
es

X = 35 x + n = 50 y = 10 x + y = 45
Zn
Bi

$ 7873.3 (d)

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Use the following commutation table to answer questions 29 – 43:

p
m
ca
s
es
Zn
Bi

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(29) If a person aged 35 years wishes to purchase a whole life annuity that will pay $3,000 a
year for life. The first payment is due at the beginning of each year from age 65 years. The net
single premium of the annuity is ……… .
(A) $11,986.56 (B) $12,5468.14 (C) $11,451.65 (D) $12,287.38
Solution:
Deferred whole life annuity due m = 65 – 35 = 30

= 3000 $11,451.65

(30) A whole life policy against death is issued to a man aged 30 years. If the net single
premium is $8,530, the face amount of insurance is …...
(A) $22,600 (B) $20,400 (C) $25,900 (D) $21,700
Solution:
Death Whole

8,530 =

8350 = R.
p
m
8350 = R (0.377433)
ca

R= $22,600
s

(31) A person aged 30 wishes to purchase an ordinary whole life annuity that will pay $ 1,000 a
es

year for life. The first payment is due at age 41. Find the net single premium of the annuity.
Zn

Solution:
Bi

Deferred whole life annuity ordinary m = 41 – 30 – 1 = 10

= 1000 1000. 15874.56

(32) A person aged 20 paid $10,000 to a life insurance company for a whole life annuity. What
is the size of each annual payment if that person receives the first payment at (a) age 20, and
(b) age 21?
Solution:
a) Whole life annuity due: NSP = =R. 10,000 = R. R = 351.43

b) Whole life annuity ordinary: NSP= =R. 10,000= R. R = 364.23

(33) An insured aged 45 years purchased an insurance policy that will give him 300 annually
until death. Calculate NSP if the first annuity is due at age 46.
Solution:
Whole life annuity ordinary

. 5634.34

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(34) An insured aged 45 years purchased an ordinary insurance policy that will give him 300
annually after 5 years until death. Calculate NSP.
Solution:
Deferred whole life annuity ordinary
X = 45 m=5 x + m = 50 R = 300
4565.35
(35) What is the net single premium for a ten-year temporary life annuity (due) of $ 2,000 per
year for a person aged 30 if the first payment is due at age 40?
Solution:
X = 30 m = 10 x + m = 40 n = 10 x+m+n = 50 R = 2000
Deferred Temporary life annuity due

2000 13403.09

36) What is the net single premium for a 15-year temporary life annuity of $1,800 per year for a
person aged 44 if the first payment is due at age 45?
Solution: p
X = 44 n = 15 R = 1800
m
Temporary life annuity ordinary
ca

1800 . 21046.15
s
es

(37) What is the net single premium for an ordinary eight-year temporary life annuity of
Zn

$1,000 per year for a person aged 30 if the first payment is due at age 41?
Bi

Solution:
X = 30 m = 41 – 30 – 1 = 10 n=8 R = 1000
Deferred Temporary life annuity ordinary

1000 5357.52

(38) An insured aged 45 years purchased due insurance policy that will give him 500 annually
starting from age 50 until reaching 60. Calculate NSP
Solution:
X = 45 m = 50 – 45 = 5 n = 10 R = 500
Deferred Temporary life annuity due

500. 3667
(39) A policy issued to a husband aged 40 promises to pay $ 15,000 if he dies after reaching 45.
Find the net single premium.
Solution: Deferred Death whole
X = 40 m=5 x + m = 45 R = 15,000
6715.57

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(40) A policy issued to a man aged 28 promises the following: (a) $ 30,000 if he survives to
reach the exact age 40, (b) $ 60,000 if he dies before age 40. What is the name of this policy?
What is the net single premium?
Solution:
Half endowment policy
X = 28 R = 30,000 x + n = 40
23141.77
(41) A policy issued to a person aged 34 provides the following: (a) $ 35,000 if he survives 10
years more to reach the exact age 44, (b) $ 35,000 if he dies before age 44. What is the name
of this contract? What is the net single premium?
Solution:
Ordinary endowment policy
X = 34 R = 35,000 x + n = 44
27427.31
(42) A policy issued to a person aged 40 provides the following: (a) $ 10,000 if he dies within 10
p
m
years, (b) $ 20,000 if he survives 10 years more. What is the net single premium? What is the
ca

name of these benefits?

s

Solution:
es

Double endowment policy

Zn

X = 40 R = 10,000 x + n = 50
Bi

15255.66
(43) An individual at the age of 20 years buy a life policy that gives him the following amounts:
a) $5,000 if the insured lives to attain the age 50.
b) $7,500 annual annuity due at age 55 as long as he is alive.
c) $10,000 annual annuity due beginning at age 20 for 25 annuals if he alive.
d) $12,000 annual annuity due beginning at age 50 and continue to age 60 if he alive
Calculate NSP of this policy.
Solution:

a) Pure endowment: 5000. 2,160.9

b) Deferred whole life annuity due: = 7500. 419,36.67

c) Temporary life annuity: 10000. 184,637

d) Deferred temporary life annuity due: = 12000 44,451.67

NSP = Sum of all policies = $273186.24

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True or false
(44) A life insurance contract issued to a husband aged 35 years, promises to pay $150,000 to

his wife if he dies within 15 years or the husband himself may receive $300,000 if he survives

to attain the exact age of 50 years. This contract is called a half endowment.

(45) A whole life policy -against death- is issued to a man aged 30 years. If the net single

premium is $17,060, the face amount of insurance is $45,200.

(46) If a person aged 35 years wishes to purchase a whole life annuity that will pay $3,000 a

year for life. The first payment is due at the beginning of each year from age 65 years. The net

single premium of the annuity is $11,451.65.

(47) If a policy issued to a man aged 30 years promises to pay $50,000 if he dies after reaching

35 but before 45 years. The net single premium is $1,305.31.

p
m
(48) Term insurance is the cheapest type of life insurance.
ca

(49) The cost of term insurance is more expensive than whole life insurance.
s
es

(50) The cost of endowment insurance is less expensive than pure endowment insurance.
Zn
Bi

(51) The most popular types of life insurance are pure endowment insurance.

(52) The whole life insurance is less expensive than pure endowment insurance.

44 45 46 47 48 49 50 51 52

F T T T T F F F F

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Chapter 10
Measurement Of Risk and Property Insurance Premiums
Summary of Rules

Loss Frequency
(chance / probability)
(Average frequency)

Severity of Loss
(Average Loss)

Average frequency × Severity of Loss

Pure (Net) premium

Gross (Office) premium

Total Loss (Paid Claims) Number of losses × Average loss

p
m
Total Pure Premiums Net pure premium × Number of exposure units
ca

Loading Ratio
s
es
Zn

1) Define the following terms:

Bi

a) Loss Frequency: the average number of losses for all insureds.

Average frequency = =%
b) Loss Severity: the average size of a loss.
Average Severity = =$
c) Pure Or Net Premium: This is the amount must be paid be the insured disregarding expenses, if all
losses are to be met.
= Average frequency Average Severity
= * =
d) Gross premium (Office Premium): the pure premium in addition to the loading, to cover the
expenses. GP =
e) Loading: Amount needed to pay all expenses including commissions, managerial expenses, taxes
and profit.
f) Equality principle:
Insured payments (Net Pure Premiums) = Insurer payments (Total Losses)
(No. of exposure units × pure premium) = (No. of losses × average size of loss)

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2) Assume that on the basis of Past experience, an insurer is able to predict that 10 of 1,000
automobile’s on the average, destroy or damage by collision each year, incurred losses of
$200,000. Each automobile is valued at $30,000 calculate the following:
1. The average frequency of Loss.
2. Average severity Of Loss.
3. The pure premium.
4. The gross premium assuming that loading ratio is 20%.
Solution:
1. Average frequency

2. Severity of loss
3. Pure premium average frequency average severity

OR:
Pure premium
Note:
For the insured, risk is reduced from $30,000 (the value of the car) to $200 (The value pure premium).
4. Gross premium
p
3) Based on the equality Principle, assume that the number of losses = 10,000 and the total insured
m
payments = $20,000,000. Find the average severity of loss?
ca

Equality principle:
Insured payments = Insurer payments
s
es

Pure premiums = total losses or claims

Pure premiums = no. of losses average severity of loss
Zn

20,000,000 = 10,000 average severity of loss

Bi

Average severity of loss =

4) Based on the equality principle, assume that the number of exposure units = 20,000 and the total
paid claims = $50,000,000. Find the pure premium per unit?
Equality principle:
Insured payments = insurer payments
Pure premiums = total losses or claims
No. of exposure units pure premium = total losses or claims
20,000 pure premium = 50,000,000
Pure premium per unit =
5) True Or False Statements
a) Gross Premium represents the cost of loss only without any loading. (F)
b) Loading is the amount needed to pay all expenses. (T)
c) The premium paid must be greater than the face amount of insurance. (F)
d) The net or pure premium represents the cost of loss only without any loading. (T)
e) Mortality tables are used to calculate the insurance premium of property insurance. (F)
f) Frequency of loss is more important than severity of loss because risks with high frequency can
destroy the firm. (F)
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6) Rewrite and complete the following table with respect to an insurer that sells 2 types of insurance
(indicate your calculation).
Types of insurance Fire Auto
No. of exposure units 10,000 50,000
Number of losses 20 (8) ?
The probability of losses (1) ? 0.02
Total Losses (Paid Claims) (2) ? (9) ?
Average Loss (Severity) $45,000 $30,000
Pure or Net premium per unit (3) ? $600
Total Pure premiums (4) ? (10) ?
Loading ratio 15% (11) ?
Gross premium per unit (5)? $1,000
Gross premiums (6)? (12) ?
Expected profit (or Total Loading) (7)? (13) ?
Actual number of losses
p 25 (14)?
m
Objective Risk (8)? 40%
ca

Solution:
s
es

Fire insurance:
Zn

(1) Probability of Loss (Average frequency of loss)

Bi

(2) Total losses (Paid Claims)

Total losses (Paid Claims)
(3) Pure (Net) Premium average frequency average severity
(4) Total pure premiums net pure premium per unit no. of exposure units

(5) Gross premium per unit

(6) Total gross premiums gross premium per unit no. of exposure units

(7) Expected profits (Total Loading) total gross premiums total pure premiums

(8) ∵ Expected number of losses = 0.002 * 10,000 = 20 units.

Objective Risk =

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Types of insurance Fire Auto

No. of exposure units 10,000 50,000
Number of losses 20 (8) ?
The probability of loss (1) ? 0.02
Total Losses (Paid Claims) (2) ? (9) ?
Average Loss $45,000 $30,000
Pure or Net premium per unit (3) ? $600
Total Pure premiums (4) ? (10) ?
Loading ratio 15% (11) ?
Gross premium per unit (5)? $1,000
Gross premiums (6)? (12) ?
Expected profit (or Total Loading) (7)? (13) ?
Actual number of losses 25 (14)?
Objective Risk (8)? 40%
Auto insurance:
p
m
ca

(8) Probability of loss then,

No. of losses prob. no .of exposure units units

s
es

(9) Total Losses (Paid Claims)

Zn

Total Losses (Paid Claims)

Bi

(10) Total pure premiums pure premium per unit no. of exposure units

(11) Loading ratio

(12) Total gross premiums gross premium per unit no .of exposure units

(13) Expected profits (Total Loading) total gross premiums total pure premiums
Expected profits –

(14) Objective Risk =

40% =

0.4 1000 = Actual – 1000

400 = Actual – 1000
Actual = 400 + 1000 = 1400

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Complete
1) If no. of exposure units = 100,000, no. of losses = 2,000 and average size of loss = 5,000, according to
equality principle,
(a)The pure premium is:

(b) If total pure premiums = 10,000,000 and average size of loss = 5,000, according to equality
principle, no. of losses is:

(c) If total claims = 10,000,000 and no. of losses = 2,000, the average size of loss is:
p
m
ca

2) If the expected loss severity is $25,000 and the actual loss severity is $28,000, then the Objective
s
es

risk =
Zn

3) If the number of exposure units is 1143 and the total losses is $30,000,000,
Bi

The Pure premium =

4) If the number of exposure units is 1143 and the total losses is $30,000,000. The loading ratio is 24%,

then the gross premium =

5) If the loss frequency = 0.0043 and the net premium is $107.5, then the severity of loss = …
Net premium = frequency severity
107.5 = 0.0043 severity
Severity = 107.5/0.0043 = $25,000
6) If the loading ratio is 17%, and the gross premium is $1234, then the net premium is ….

GP = 1234 = 1234 0.83 = Pure Premium = 1024.22

7) Loading is the amount needed to pay all expenses including commissions, taxes, acquisition
expense, and allowance for contingencies and profit.
8) The Net premium is an amount sufficient to pay the individuals share of all future claims (losses) of
the group.

Introduction to Risk and Insurance – Nirmeen Samy – Final Revision – 01003703872

 20

9) Type of insurance Fire

Expected number of exposure units 10,000
Expected Number of losses 30
The Expected probability of loss
The Expected Total Losses (Paid Claims)
Expected Average Loss $33,000
Pure or Net premium per unit
Total Pure premiums
Loading ratio 25%
Gross premium per unit
Gross premiums
Expected profit (or Total Loading)
Actual number of losses 36
Objective Risk
1) The probability of loss is
p
m
a) 3% b) 333.33 c) 0.003 d) none of the above
ca

2) The total losses (expected paid claims) equals

a) $330,000 b) $990,000 c) $99 d) none of the above
s

3) pure or net premium per unit is

es

a) $99 b) $990000 c) $33000 d) none of the above

Zn

4) pure premiums equal

Bi

a) $990,000 b) $2970 c) $366.67 d) none of the above

5) Gross premium per unit is
a) $123.75 b) $132 c) $44 d) none of the above
6) Gross premiums equal
a) $123750 b) $742500 c) $1320, 000 d) none of the above
7) $ the expected profit in fire insurance
a) $110,000 b) $440,000 c) $330,000 d) none of the above
8) $ Insurer Payments
a) $110,000 b) $990,000 c) $330,000 d) none of the above
9) $ Insured Payments
a) $110,000 b) $990,000 c) $330,000 d) none of the above
10) Objective risk is
a) – 20% b) 20% c) 0 d) none of the above

Solutions
1 2 3 4 5 6 7 8 9 10
c b a a b c c b b b

Introduction to Risk and Insurance – Nirmeen Samy – Final Revision – 01003703872

 21

4) The principle or principles of insurance

Final exam 2021 that prevent the insured from profiting
SelectthemostcorrectSolution:ofthefollowingquestions; of insurance is or are:
Aly owns a commercial office building that a. Subrogation
is insured under three fire insurance
policies. He has $50,000 of insurance in b. Pro rata.
Company A, $100,000 Company B, and
$50,000 in company C. The office is c. indemnity
damaged by fire to the extent of $100,000.
The actual cash value of the office at the d. All of the above.
time of loss is $500,000 how much will Aly
e. None of the above.
collect from each insurer? (Each policy
applies a 100% coinsurance clause if any). 5) Subrogation is used in all of the
following types of insurance except
1) Insurers payments are:
a. Life insurance.
a. $60,000
b. $100,000 b. marine insurance.
c. $10,000 company A, $20,000
c. property insurance.
company B, and $ 10,000 company p
C. d. automobile insurance.
m
d. None of the above.
ca

e. none of the above.

2) Insured payment is:
s

6) The possibility of loss resulting from a

es

a. $60,000 flood an example of:

Zn

b. $40,000 a. a static fundamental risk,

Bi

c. $50,000 b. a dynamic fundamental risk,

d. $10,000 company A, $20,000 c. a static particular risk
company B, and $10,000 company C.
d. a dynamic particular risk,
e. None of the above.
e. None of the above.
3) Subrogation as an important principle is
inserted in the part of …………. In the
insurance contract.

a. conditions

b. insuring agreement

c. exclusions

d. All of the above.

e. None of the above.

Introduction to Risk and Insurance – Nirmeen Samy – Final Revision – 01003703872

 22

With respect to the following mortality 11) 10/q35 equals:

table, Solution: the following: a. 0.0115793
X lx dx b. 0.0016041
30 ? 67 c. 0.0115697
31 ? 68 d. 0.01
32 ? 71 e. None of the above
1
33 ? 74 12) /10q35
34 ? 78 a. 1158
35 94133 83 b. 0.0091360
• • • c. 0.0123
40 • • d. 0.0016041
• • • e. Noneoftheabove
45 ? 151 13) 10/5q35
46 92892 160 a. 0.0115793
47 ? 172 b. 0.0091360
c. 0.0115697
• • •
d. 0.0016041
• • •
e. Noneoftheabove
• • •
14) In computing property insurance
p
50 92183 207 premiums or prices for the insurance they
m
51 91976 220 sell, insurers may use all but which of the
ca

55 91013 272 following:

7) Number of deaths between ages 30 and a. ACV
s
es

35: b. The probability of loss and the severity

a. 83 of loss
Zn

b. 441 c. Age
c. The face amount
Bi

c. 358
d. 94133 d. More than one of the above
e. None of the above. 15) If a policy issued to a husband aged 40
8) d32+3-1 equals: under which an insurer promises to pay
a. d32 + d3 - d1 $30000 to the husband himself if he lives 20
b. d32 + d3 – d-1 years, the name of the is policy is:
c. d34 = 78 a. pure endowment insurance
d. D32+3-1 b. endowment insurance
e. noneoftheabove c. half endowment insurance
9) L30 equals: d. term insurance
a. 94491 e. None of the above.
b. 94133 16) A net single premium for a policy issued
c. 358 to a husband aged 30 under which an
d. 78 insurer promises to pay $50000 to his wife
10
10) q35 equals: if he dies within 20 years or to pay S50000
a. 93043 to the husband himself if he lives 20 years
b. 0.01 is:
c. 1090 a. = 50000 *
d. 0.01157936
e. None of the above b. = 50000 *
c. = 100000 *

Introduction to Risk and Insurance – Nirmeen Samy – Final Revision – 01003703872

 23

d. = 50000 * 21) One of the following is not considered

as an insured duty:
e. None of the above.
17) A net single premium for a policy issued a. paying premiums
to a husband aged 30 under which an b. report the accident
insurer promises to pay $50000 to his wife c. sues the third party
if he dies within 20 is: d. protect property
a. = 50000 * e. None of the above.
22) Life insurance is available under
b. = 50000 *
a. Private Insurance and Social
c. = 100000 * Insurance
d. = 50000 * b. Fire Insurance only
c. Auto Insurance only
e. None of the above.
d. Social Insurance only
Assume that Ahmed owns a house and
wishes to insure it against fire for $500,000. e. Private Insurance only
For underwriting reasons, insurers may 23) In Property Insurance,
limit the amount of insurance they will a. Gross Premium =Average Frequency
write on a given property. Assume that an x Average Severity
agent places $150,000 of insurance with b. Gross Premium = Average
company A, $150,000 with company B, and
Frequency
$200,000 with company C. If the loss is total
p
m
and the ACV at the time of loss = $400000. c. Net Premium = Average Severity
ca

Determine how much each company will d. Net Premium = Average Probability
pay? (Each policy applies a 100% x Average Severity
s

coinsurance clause if any). e. Gross Premium = Average

es

Frequency
Zn

18) Insurance condition is:

a. Fire Insurance 24) Loading is:
Bi

b. Underinsurance a. including the amount needed to pay

c. Full Insurance all expenses
d. Over Insurance b. including commissions and
e. None of the above. managerial expenses
19) Insurers payments are: c. including an allowance for
a. $187,500 company A, $187,500 company contingencies and profit
B, and $250,000 company C.
d. including taxes and acquisition
b. $150,000 company A, $150,000 company
B, and $200,000 X company C. expenses
c. $120,000 company A, $120,000 company e. All of the above.
B, and $160,000 company C. 25) There is no relationship between
d. $96,000 company A, $96,000 company B, exclusions and insurance premium
and $128,000 company C. a. I am not sure
e. none of the above.
b. No relationship in fire insurance only
20) All of the following are considered as an
c. in auto insurance only
insurer duties except:
a. introduce loss prevention services d. in all types of insurance
b. paying for losses
c. sues the third party if any
d. collect premiums from the beneficiary
e. none of the above.

Introduction to Risk and Insurance – Nirmeen Samy – Final Revision – 01003703872

 24

Question Two 14. A physical hazard is a physical condition

State whether the following are true or false: that increases the chance of loss or the
1. Loading ratio is computed from the gross severity of loss.
15. An individual who purchases insurance is
premium.
called the insured.
2. There is a relationship between 16. Insurance allows, someone to eliminate
Insurance and economy. risk.
3. A homeowner policy (or fire insurance) 17. Compulsory auto insurance covers the
may provide coverage for additional physical damage of car itself and the
living expenses after a fire. liability against the others.
4. Under a named-perils policy, all losses 18. Mathematically, objective risk may be
are covered except those losses calculated as follows:
specifically excluded. If the loss is not
excluded, then it is covered. 19. A claim is an application made by the
5. Collision insurance covers your vehicle insured to buy insurance.
against risks such as falling objects and 20. All requirements of insurable risk should
hail. exist at the day of buying insurance or
6. The conditions section in an insurance the insurer reject to sell insurance.

p
contract imposes certain duties on the m21. A fortuitous loss is one that is unforeseen
insured if he wishes to collect for a loss. If and unexpected and occurs as a result of
ca
the policy conditions are not met, the chances.
insurer can refuse to pay the claim. 22. The payment made by an employee in
s
es

7. The principle of indemnity is not applied social insurance is called premium,

in life insurance.
Zn

23. Ideal method for handling risk: From the

8. Fundamental risks may due to economic viewpoint of society, loss control is the
Bi

changes: as inflation and unemployment. ideal method for handling risk.

9. Individuals are being held legally liable 24. Homeowner insurance policy which
for the negligent operation of their mention: fire, lightning and theft to be
automobiles. covered by the policy is called, All risk
10. Loss control is recommended for those policy.
risks associated with high probability or 25. Non-financial risks have not any
frequency and low severity. financial consequences, such as death of a
11. The carried amount of insurance is the friend and failure in an exam, these
face amount of insurance determined in cases, contain a feeling or emotional
the policy and it represents the maximum
condition that have not any financial
financial responsibility of the insurer in
both partial and total loss. consequences. Insurance is concerned
12. The insured who establish or adapting a only with financial risks or losses.
sprinkler system in fire insure may pay 26. Conditions as a part of an insurance
greater premium. contract permits modify any provision in
13. As the number of exposure units the original insurance contract.
increases, an insurance company cannot 27. Excluded perils means the perils which
predict its future losses with a high
are covered by insurer.
degree of accuracy.

Introduction to Risk and Insurance – Nirmeen Samy – Final Revision – 01003703872

 25

28. Earthquake as a catastrophic risk is 38. Losses in property insurance in most

impossible to covered by a private cases are total.
insurer, but it is covered by social 39. Missing profit because of fire may
insurance. covered under fire insurance.
29. Insurance is only one of several methods 40. Term insurance is the cheapest type of
for handling risk. Life insurance.
30. Loss must be determinable with respect 41. The most popular types of Life insurance
to cause, time, place, and amount The are pure endowment insurance.
purpose of this requirement is that the 42. The cost of endowment insurance is less
insurer must be able to determine if the expensive than pure endowment
loss is covered under the insurance insurance.
policy, and if is covered, how much the 43. The cost of term insurance is less
company will pay. expensive than endowment insurance.
31. Insurance makes a borrower a better 44. Multiple insurance may be defined as a
credit risk, because it guarantees the combination of Life insurance coverage
value of the borrower's security, or gives and liability insurance coverage.
greater assurance that the loan will be 45. The Death whole is less expensive than

p
repaid. m pure endowment insurance
32. Insurance Reducing the cost of capital in 46. If a policy issued to a husband aged 30
ca
the financial market. under which an insurer promises to pay
33. Certain duties imposed in an insured to $50000 to his wife upon death, the name
s
es

collect from an insurer is called insuring of this policy is term insurance.

agreement. 47. The net single premium of a Death whole
Zn

34. A very valuable contribution towards contract issued to a person aged 40 under
Bi

balance of payments is made by invisible which an insurer promises to pay $34000

exports. These include banking, shipping to his son upon death,
and other services, as well as insurance 1% - you may use this:
transacted abroad by domestic insurers X Dx Nx Cx Mx
through reinsurance in the balance of 40 44418 751949 52 17333
payment. The net single premium = * 34000
35. Lx is the number of survivors at the first
age in a given life table and called radix.
48. The neglected step in the risk
36. The probability that a person aged x
will die before reaching age x + n is denoted management process is probably the risk
identification phase
by nqx, Hence nqx = =
49. Utmost good faith is a principle related to
37. The basis of the theory of life insurance is
all types of insurance.
the mortality or life tables. A mortality
50. The principle of subrogation is not
table has been defined as "the instrument applied in life insurance.
by means of which are measured the
probabilities of life and of death”. Good luck

Introduction to Risk and Insurance – Nirmeen Samy – Final Revision – 01003703872

 26

Final exam 2021 – solutions

Question One

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
c a e d a a c c a d b c b c a b d d c d c a d e a

Question two

1 2 3 4 5 6 7 8 9 10
T T T F F T T T T T
11 12 13 14 15 16 17 18 19 20
T F F T T F F T F T
21 22 23 24 25 26 27 28 29 30
T F T F T F F T T T
31 32 33 34 35 36 37 38 39 40

p
T T F T T
m T T F T T
ca
41 42 43 44 45 46 47 48 49 50
s

F F T F F F T F T T
es
Zn
Bi

Introduction to Risk and Insurance – Nirmeen Samy – Final Revision – 01003703872

 27

Final exam 2022

Question One (20 Questions – 30 marks) d. None of the above
Select the most correct answer for the 6. What is the net single premium for a ten
following questions: year temporary life annuity of $ 1,000 per
With respect to the following mortality table: year for a person aged 35 if the first
payment is due now? (You may use the
Commutation Table at the last page)
a. $8,904.96
b. $8,892.93
c. $9,121.46
d. None of the above
From this table answer the following 7. A person aged 35 wishes to purchase an
(rounded to 5 decimals): ordinary whole life annuity that will pay
1. equals: $3,000 a year for life. The net single
a. 9211 premium of the annuity is: (You may use
b. 9094 the Commutation Table at the last page)
c. 9135 a.
d. None of the above
p
b.
m
ca
2. means the probability that: c.
a. A person aged 5 dies within 40 years.
s

d. None of the above

b. A person aged 40 survives 5 years.
es

8. A $ 100,000, 20-year pure endowment

c. A person aged 40 dies within 5 years.
Zn

insurance policy was bought by someone

d. None of the above.
aged 30, the net annual premium equals:
Bi

3. The probability that a person aged 40

(You may use the Commutation Table at
survives 5 years equals:
the last page)
a. 0.02078
b. 0.97922 a. $ 22,774
b. $ 3,618.83
c. 9049
c. $ 4,518.7
d. None of the above
d. None of the above
4. equals:
9. A policy issued to a man aged 30, promises
a. 73 to pay $ 200,000 if he dies after reaching
b. 8976 35 but before 45. The net single premium
c. 0.0079 equals: (You may use the Commutation
d. None of the above. Table at the last page)
5. The net single premium for a whole life a. $ 490
annuity due of $2,000 issued to someone b. $ 2082.05
now aged 35 equals: (you may use the c. $ 1878.62
Commutation Table at the last page): d. None of the above.
a. $ 22,774 10. If a policy issued to a husband aged 30
b. $ 64,551.96 under which an insurer promises to pay
c. $ 1,878.62
Introduction to Risk and Insurance – Nirmeen Samy – Final Revision – 01003703872
 28

$30,000 to his wife if he dies within 20 c. $ 600,000

years or to pay $ 60,000 to the husband d. None of the above
himself if he lives 20 years The 15 14. Insurance payments are:
payments limited annual premium equals: a. $ 300,000 company A, $ 150,000
a. company B and $ 150,000 company C
b. $ 100,000 company A, $ 50,000
b. company B and $ 50,000 company C
c. $ 100,000 company A, $ 100,000
c.
company B and $ 100,000 company C
d. None of the above d. None of the above
11. If a policy issued to a husband aged 30 15. Insured payment is:
under which an insurer promises to pay $ a. $ 200,000
15000 to his wife if he dies within 20 years b. $ 600,000
or to pay the same amount to the husband c. $ 100,000
himself if he lives 20 years The net single d. None of the above
premium equals: 16. A husband aged 45 buying a life
a. insurance contract under which an insurer

p
promises to pay $ 500,000 to his wife if he
b. m dies any time. The net annual premium is:
ca
c. (you may use the Commutation Table at
the last page)
s

d. None of the above

es

a. 0,4445
Assume that Adel owns a house and wishes
b. $ 222,226.58
Zn

to insure it against fire for $600,000. For

c. $ 7,782.19
underwriting reasons, insurers may limit
Bi

d. None of the above.

the amount of insurance they will write on
17. If a person aged 45 buy a life insurance
a given property. Assume that an agent
policy by which insurer promises to pay
places $300,000 of insurance with
$1,000,000 if he survives to attain the exact
company A, $150,000 with company B,
age 55. The net single premium equals:
and $150,000 with company C. If the loss
(you may use the Commutation Table at
is 300,000 and the ACV at the time of loss
the last page)
= $900,000. Answer the questions from
a. $ 0,3346
(12) up to (15):
b. $ 0,8024
12. Insurance condition is:
c. $ 802,441.96
a. Over Insurance
d. None of the above.
b. Under Insurance
18. Subrogation is used in all of the following
c. Fire Insurance
types of insurance except:
d. None of the above
a. life insurance
13. Indemnification from the three
b. marine insurance
companies equals:
c. property insurance
a. $ 200,000
d. automobile insurance
b. $ 300,000

Introduction to Risk and Insurance – Nirmeen Samy – Final Revision – 01003703872

 29

19. The statements that provide information 9. In the double endowment insurance
about the property or life to be insured as contract the amount of life insurance is
a part of insurance contract is called: half the amount of the death insurance.
a. Insuring Agreement. 10. When calculating the net annual
b. Declarations. premium, the following equation must be
c. Exclusions. met: The single net premium = the present
d. Conditions. value of the net annual premiums.
20. Automobile insurance provides three 11. The net annual premium is called
important types of protection. “ordinary” if it is paid throughout the
a. Property insurance or physical damage. contract term.
b. Liability insurance. 12. The “limited” net annual premium is
c. Medical Payments insurance. smaller than the “ordinary” net annual
d. All of the above. premium.
Question Two (30 Questions – 30 marks) 13. Speculative risk is defined as a situation
State whether the following statements are in which there is only one possible
true or false: outcome, which is loss.
1. Risk retention include risks in which the 14. The insurance industry provides many

p
possible losses can be met from assets or m job opportunities, as insurance companies
cash flow. employ accountants, lawyers, doctors and
ca
2. The basic for calculating insurance safety engineers.
premiums in property and liability 15. One of the requirements of insurable
s
es

insurances differs from life insurance. risks: that the risk is likely to occur and
3. Life insurance are long-term insurance, as that it has occurred in the past.
Zn

they are issued for long years, which may 16. Insurers can provide valuable risk
Bi

be 5, 10 or 30 years, for example, Whereas management services, such as loss control

property and liability insurances are services, identification of risks, and claims
short-term. adjusting.
4. There is an inverse relationship between 17. It is better for an insurer to cover 10
the amount of insurance and the premium buildings against fire valued at $400,000
paid by the insured. per each building rather than to cover one
5. Net premium (mathematical expectation) building against fire valued at $4000,000.
= probability of life or death multiplied by 18. If loading ratio is 17% and gross
the present value of sum insured. premium is $1234, the net premium is
6. The gross premium is less than the net $1054.7
premium by the amount of the additional 19. There are many personnel perils that
loadings of the insurance contract. cause financial loss, such as, death,
7. The endowment insurance policy consists disability, and sickness.
of a purely endowment contract and a 20. An example of property perils is, the loss
temporary death contract. of income if a person dies prematurely.
8. The endowment insurance policy is the 21. In property insurance: the premium paid
most expensive insurance policy. by the insured must be less than the face
amount of insurance and must be
Introduction to Risk and Insurance – Nirmeen Samy – Final Revision – 01003703872
 30

relatively small with respect to the value at 27. Government insurance has been
risk. established to provide insurance against
22. Inland marine policy provides broad particular risks at a lower rate than would
coverage for certain specified perils. They be charged by private insurers.
include perils of the sea such as damage or 28. Under all risk policy only those perils
loss from bad weather, high waves, mentioned on the policy are covered.
collision, sinking, and stranding ‫جنووو‬ 29. Coinsurance clause applied in all types of
‫السفينة‬. insurance.
23. There are many personnel perils that 30. There is a relationship between hazards
cause partial loss or total loss of a and the principle of insurable interest.
property, such as, fire, collision lightning,
windstorm, hail, tornadoes, earthquakes, The Commutation Table at 2.5%
theft and burglary.
24. Subjective Risk is defined as the
uncertainty based on an individual’s
mental condition or state of mind.
25. Fortuitous loss means that loss should not

p
intentional and not happened in the past m
but may happen in the future.
ca
26. Engineering insurance is a highly
specialized type of insurance that covering
s
es

a wide variety of power producing

equipment, including boilers, turbines,
Zn

steam or gas engines, generators and

Bi

computers.
MCQ
1 2 3 4 5 6 7 8 9 10
c c b c b c d d c c
11 12 13 14 15 16 17 18 19 20
a b a b c c c a b d
True Or False
1 2 3 4 5 6 7 8 9 10
T T T F T F T T F T
11 12 13 14 15 16 17 18 19 20
T F F T F T T F T F
21 22 23 24 25 26 27 28 29 30
T F F T T T F F F T

Introduction to Risk and Insurance – Nirmeen Samy – Final Revision – 01003703872

 31

Final Exam 2023

First: MCQ (10 questions – 30 marks – 3 marks per each)
1. Based on experience, an insurer can predict with reasonable accuracy that 30 of 10,000
automobiles, on the average, destroy or damage by collision each year incurred losses of
$990,000. Assuming that loading ratio is 25%. The Gross premium equals ......... dollars.
a. 33000 b. 132 c. 99 d. 0.0033
2. The probability that a person aged 22 will live ten years is 0.96 and that he will live 30 years is
0.72. The probability that a person aged 32 will live to age 52 is ……… .
a. 0.9 b. 0.75 c. 0.69 d. 1.33
3. An insured aged 25 years purchased an eight-year Term life annuity that will give him $1500
annually. Calculate the net single premium if the first payment is at age 45 (m=20 and n=8)
a. $229.8 b. $397.2 c. $6221.6 d. $200
4. A person aged 30 purchased a term life insurance under which the insurer will pay $50,000 if
he dies between age 35 and 45. Calculate the net single premium.
a. $1108.5 b. $38910.5 c. $386935 d. $1305.3
5. A policy issued to a person aged 30 provides the following: (a) $50,000 if he dies before age
50, (b) $25,000 if he survives to reach the exact age 50. What is the net single premium?
a. $59181.4 b. $29590.7 c. $16886 d. $15492.3
p
m
6. A $70,000, 20-year pure endowment insurance policy was bought by someone aged 30. Find
ca

the 15-payment net annual premium.

a. $3163.1 b. $39475.7 c. $59895.9 d. $2533.3
s
es

7. If a person aged 30 years buys an insurance contract under which his wife receives $40,000 if
he dies within 20 years. Find the ordinary annual premium:
Zn

a. $143.1 b. $825.7 c. $2230 d. $12867.2

Bi

8. A policy issued to a person aged 30 provides the following: (a) $300,000 if he survives to reach
the exact age 50, (b) $300,000 if he dies before age 50. Find ordinary annual premium:
a. $11930.3 b. $185907.1 c. $202632.7 d. $13003.7
9. Assume that an insured owns an apartment house and he insure it for $20,000 at three
companies as follows:
Insurer Face Amount
A 10,000
B 6,000
C 4,000
If ACV = $25,000 and coinsurance clause is present, and loss occurred is $10,000, insurers
payments for this loss are:
a. $4,000 company A, $3,000 company B, and $1,000 company C.
b. $10,000 company A, $6,000 company B, and $4,000 company C.
c. $4,000 company A, $2,400 company B, and $1,600 company C.
d. $5,000 company A, $3,000 company B, and $2,000 company C.

Introduction to Risk and Insurance – Nirmeen Samy – Final Revision – 01003703872

 32

10. From the following table:

𝐱 50 51 52 53 54 55 56
𝐋𝐱 8400 8250 8000 7700 7500 7100 6800
The probability that a man aged 50 will die between age 52 and 55.
a. 0.1125 b. 0.1267 c. 0.1071 d. 0.8095
Second: True or False (30 questions – 30 marks – 1 mark per each)
1. Declaration provides basic information about the property or life be insured.
2. The endowment insurance policy is the most expensive insurance policy.
3. The “limited” net annual premium is smaller than the “ordinary” net annual premium.
4. Under a pure endowment contract, If the insured dies before the end of contract, his
beneficiaries will receive the face amount of the policy.
5. A complete expectation of life means the average number of years to be lived in the future
assuming that death occurs during the year.
6. In the double endowment insurance contract, the amount of term insurance is half the
amount of the pure endowment insurance.
7. A person aged 30 purchased a whole life insurance under which the insurer will pay $150,000
upon death. The limited annual premium (for y=20 payments) is $3633.1.
8. Term insurance is the cheapest type of life insurance contracts.
p
m
9. To calculate the objective risk, we should apply the equation as:
ca

𝐄𝐱𝐩𝐞𝐜𝐭𝐞𝐝 𝐍𝐨.𝐨𝐟 𝐋𝐨𝐬𝐬𝐞𝐬 (−)𝐀𝐜𝐭𝐮𝐚𝐥 𝐍𝐨.𝐨𝐟 𝐋𝐨𝐬𝐬𝐞𝐬

𝐎𝐛𝐣𝐞𝐜𝐭𝐢𝐯𝐞 𝐑𝐢𝐬𝐤 = × 𝟏𝟎𝟎
𝐄𝐱𝐩𝐞𝐜𝐭𝐞𝐝 𝐍𝐨.𝐨𝐟 𝐋𝐨𝐬𝐬𝐞𝐬
s

10. Based on last experience in fire insurance, an insurer determined gross premium at $3200
es

and if loading ratio is 25%, the pure or net premium equals 2400 dollars.
Zn

11. If the probability that an individual at age 20 will survive to reach age 28 = 0.91234 and
Bi

number of survivors at age 28 = 22592,then number of survivors at age 20 = 20612.

12. If 10q25 = 0.0018, this means that among of 10000 persons live at age 25, 18 persons may die
before reaching age 35.
13. If the last age in a given mortality table is 100 and number of survivors at age 50 = 20000,
then number of deaths between age 50 and age 100 = 200.
14. The probability that an individual aged zero dying before reaching age 100 = 1 (the last age is
100).
15. The symbol Nx is widely used in annuities and annual premiums.
16. The net single premium of a $10,000 pure endowment policy payable in 10 years to a person
𝐋𝟑𝟓
now aged 25 equals 𝟏𝟎, 𝟎𝟎𝟎 𝐕 𝟏𝟎
𝐋𝟐𝟓
17. The law of large numbers stated that: when number of exposure units’ increases, the
insurance company can predict its future losses with a high degree of accuracy.
18. Chemical material in a plant is a moral hazard that increases the chance of fire.
19. Death of a friend and failure in an exam these cases are example of financial risks.
20. Risk control focuses on minimizing the probability of loss or severity of losses.
21. Social insurance covers employees in the government only.
22. Ocean marine insurance provides protection for goods and ships.
23. The principle of indemnity is not applied in life insurance.

Introduction to Risk and Insurance – Nirmeen Samy – Final Revision – 01003703872

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24. In over insurance: the actual cash value is greater than the face or carried amount of
insurance.
25. All insurance contracts must be supported by an insurable interest.
26. Insured have to pay additional premium under an endorsement or rider.
27. Pro rate liability clause (or contributions clauses) is applied when more than one policy
covers the same risk for the same period.
28. The gross premium is less than the net premium by the amount of the additional loadings of
the insurance contract.
29. In life policies, annual premiums are payable at the beginning of each year.
30. The endowment insurance policy consists of a pure endowment contract and a temporary
death contract.
The Commutation Table at 2.5%
𝐗 𝐃𝐗 𝐍𝐗 𝐂𝐗 𝐌𝐗 𝐗
0 10000 324850 69.07 2076 0
1 9687 314850 16.63 2007 1
20 5898 167827 10.3
p 1804 20
21 5744 161929 10.26 1794 21
m
ca

25 5165 139840 9.725 1754 25

s

26 5029 134675 9.617 1744 26

es

30 4520 115338 9.392 1706 30

Zn

31 4400 110818 9.401 1697 31

Bi

35 3950 93907 9.672 1659 35

40 3442 75195 11.85 1607 40
45 2979 58928 15.55 1541 45
50 2549 44904 20.69 1454 50
53 2303 37505 24 1366 51
60 1750 23056 34.72 1187 60
Good luck 

Introduction to Risk and Insurance – Nirmeen Samy – Final Revision – 01003703872

 34

Solution
MCQ
𝟑𝟎
1) Probability = = 0.003
𝟏𝟎,𝟎𝟎𝟎
𝟗𝟗𝟎,𝟎𝟎𝟎
Average Severity = = 33,000
𝟑𝟎

Pure premium = Probability × Average Severity = 0.003 × 33,000 = 99

𝐏𝐮𝐫𝐞 𝐩𝐫𝐞𝐦𝐢𝐮𝐦 𝟗𝟗
Gross premium = = = 132 (b).
𝟏−𝐥𝐨𝐚𝐝𝐢𝐧𝐠 𝐫𝐚𝐭𝐢𝐨 𝟏−𝟎.𝟐𝟓

2) 22 32 ? 52
0.96
0.72
10
P22 = 0.96
30
P22 = 0.72
30
P22 = 10P22 × 20P32
20 𝟑𝟎𝐏𝟐𝟐 𝟎.𝟕𝟐
P32 = = = 0.75 (b).
𝟏𝟎𝐏𝟐𝟐 𝟎.𝟗𝟔

𝐍𝐱+𝐦 −𝐍𝐱+𝐦+𝐧 𝐍𝟒𝟓 −𝐍𝟓𝟑

p
𝟓𝟖𝟗𝟐𝟖−𝟑𝟕𝟓𝟎𝟓
3) NSP = 𝐑. = 𝟏𝟓𝟎𝟎 . = 𝟏𝟓𝟎𝟎 . = 6221.6 (c).
m
𝐃𝐱 𝐃𝟐𝟓 𝟓𝟏𝟔𝟓
ca

𝐌 𝐱+𝐦−𝐌 𝐱+𝐧+𝐦 𝐌𝟑𝟓 −𝐌𝟒𝟓 𝟏𝟔𝟓𝟗−𝟏𝟓𝟒𝟏

4) NSP = 𝐑. 𝐃𝐱
= 𝟓𝟎, 𝟎𝟎𝟎.
𝐃𝟑𝟎
= 𝟓𝟎, 𝟎𝟎𝟎.
𝟒𝟓𝟐𝟎
= 1305.3 (d).
s
es

(𝐃𝐱+𝐧 )+𝟐(𝐌𝐱 −𝐌𝐱+𝐧 ) (𝐃𝟓𝟎 )+𝟐(𝐌𝟑𝟎 −𝐌𝟓𝟎 ) 𝟐𝟓𝟒𝟗+𝟐(𝟏𝟕𝟎𝟔−𝟏𝟒𝟓𝟒)

5) NSP = 𝐑. 𝐃𝐱
= 25,000.
𝐃𝟑𝟎
= 25,000 .
𝟒𝟓𝟐𝟎
= 16886 (c).
Zn

𝐃𝐱+𝐧 𝐃𝟓𝟎 𝟐𝟓𝟒𝟗

6) NAP = 𝐑. 𝐍 = 70,000. = 70,000. = 3163.1 (a).
Bi

𝐱− 𝐍 𝐱+𝐲 𝐍𝟑𝟎− 𝐍𝟒𝟓 𝟏𝟏𝟓𝟑𝟑𝟖−𝟓𝟖𝟗𝟐𝟖

𝐌 𝐱 −𝐌𝐱+𝐧 𝐌𝟑𝟎 −𝐌𝟓𝟎 𝟏𝟕𝟎𝟔−𝟏𝟒𝟓𝟒

7) NAP = R. = 40,000 . = 40,000. = 143.1 (a).
𝐍𝐱 −𝐍𝐱+𝐧 𝐍𝟑𝟎 −𝐍𝟓𝟎 𝟏𝟏𝟓𝟑𝟑𝟖−𝟒𝟒𝟗𝟎𝟒

(𝐃𝐱+𝐧 )+(𝐌𝐱 −𝐌 𝐱+𝐧 ) (𝐃𝟓𝟎 )+(𝐌𝟑𝟎 −𝐌𝟓𝟎 ) 𝟐𝟓𝟒𝟗+(𝟏𝟕𝟎𝟔−𝟏𝟒𝟓𝟒)

8) NAP = 𝐑. = 300,000. = 300,000. = 11930.31 (a).
𝐍𝐱− 𝐍𝐱+𝐧 𝐍𝟑𝟎− 𝐍𝟓𝟎 𝟏𝟏𝟓𝟑𝟑𝟖−𝟒𝟒𝟗𝟎𝟒

𝐅𝐚𝐜𝐞 𝐀𝐦𝐨𝐮𝐧𝐭 𝟐𝟎,𝟎𝟎𝟎

9) 𝐈𝐧𝐝𝐞𝐦𝐧𝐢𝐭𝐲 = 𝐥𝐨𝐬𝐬 × 𝐀𝐂𝐕
= 𝟏𝟎, 𝟎𝟎𝟎 × 𝟐𝟓,𝟎𝟎𝟎 = 𝟖, 𝟎𝟎𝟎
𝐟𝐚𝐜𝐞 𝐀𝐦𝐨𝐮𝐧𝐭 𝐨𝐟 𝐭𝐡𝐞 𝐈𝐧𝐬𝐮𝐫𝐞𝐫(𝐀) 𝟏𝟎,𝟎𝟎𝟎
𝐀𝐦𝐨𝐮𝐧𝐭 𝐏𝐚𝐢𝐝 𝐢𝐧𝐬𝐮𝐫𝐞𝐫(𝐀) = = × 𝟖𝟎𝟎𝟎 = 𝟒𝟎𝟎𝟎
𝐓𝐨𝐭𝐚𝐥 𝐟𝐚𝐜𝐞 𝐀𝐦𝐨𝐮𝐧𝐭 𝟐𝟎,𝟎𝟎𝟎
𝐟𝐚𝐜𝐞 𝐀𝐦𝐨𝐮𝐧𝐭𝐨𝐟𝐭𝐡𝐞𝐈𝐧𝐬𝐮𝐫𝐞𝐫(𝐁) 𝟔,𝟎𝟎𝟎
𝐀𝐦𝐨𝐮𝐧𝐭𝐏𝐚𝐢𝐝𝐨𝐟𝐢𝐧𝐬𝐮𝐫𝐞𝐫(𝐁) = = 𝟐𝟎,𝟎𝟎𝟎 × 𝟖𝟎𝟎𝟎 = 𝟐𝟒𝟎𝟎
𝐓𝐨𝐭𝐚𝐥 𝐟𝐚𝐜𝐞 𝐀𝐦𝐨𝐮𝐧𝐭
𝐟𝐚𝐜𝐞 𝐀𝐦𝐨𝐮𝐧𝐭 𝐨𝐟 𝐭𝐡𝐞 𝐈𝐧𝐬𝐮𝐫𝐞𝐫(𝐂) 𝟒,𝟎𝟎𝟎
𝐀𝐦𝐨𝐮𝐧𝐭 𝐏𝐚𝐢𝐝 𝐨𝐟 𝐢𝐧𝐬𝐮𝐫𝐞𝐫(𝐂) = = 𝟐𝟎,𝟎𝟎𝟎 × 𝟖𝟎𝟎𝟎 = 𝟏𝟔𝟎𝟎 (c).
𝐓𝐨𝐭𝐚𝐥 𝐟𝐚𝐜𝐞 𝐀𝐦𝐨𝐮𝐧𝐭
𝐋𝟓𝟐 −𝐋𝟓𝟓 𝟖𝟎𝟎𝟎−𝟕𝟏𝟎𝟎
10) 𝟐/𝟑𝐪𝟓𝟎 = = = 0.1071 (c).
𝐋𝟓𝟎 𝟖𝟒𝟎𝟎

Introduction to Risk and Insurance – Nirmeen Samy – Final Revision – 01003703872

 35

True or False
1 True
2 True
3 False
4 False
5 True
6 True
𝐌𝐱 𝐌𝟑𝟎
7 True → NAP = 𝐑. = 150,000. = 3633.18
𝐍𝐱 −𝐍𝐱+𝐲 𝐍𝟑𝟎 −𝐍𝟓𝟎
8 True
9 True
10 True
𝐍𝐏
GP =
𝟏−𝐥𝐨𝐚𝐝𝐢𝐧𝐠
𝐍𝐏
3200 =
𝟎.𝟕𝟓
NP = 2400
8
11 P20 = 0.91234
𝐋
8
P20 = 𝟐𝟖
𝐋𝟐𝟎
𝟐𝟐𝟓𝟗𝟐
0.91234 =
𝐋𝟐𝟎 p
L20 = 24762.7→False
m
12 True
ca

13 False
14 True
s
es

15 True
𝐃 𝐱+𝐧
16 NSP = 𝐑.
Zn

𝐃𝐱
𝐱+𝐧
𝐃𝐱+𝐧 = 𝐕 . 𝐋𝐱+𝐧 ∴ 𝐃𝟑𝟓 = 𝐕 𝟑𝟓 . 𝐋𝟑𝟓
Bi

𝐃𝐱 = 𝐕 𝐱 . 𝐋𝐱 ∴ 𝐃𝟐𝟓 = 𝐕 𝟐𝟓 . 𝐋𝟐𝟓
𝐕 𝟑𝟓 .𝐋𝟑𝟓 𝐋𝟑𝟓
∴ NSP = 10,000. = 10,000. 𝐕 𝟏𝟎 . →True
𝐕 𝟐𝟓 .𝐋𝟐𝟓 𝐋𝟐𝟓
17 True
18 False
19 False
20 True
21 False
22 True
23 True
24 False
25 True
26 True
27 True
28 False
29 True
30 True

Best of luck 
Nirmeen Samy

Introduction to Risk and Insurance – Nirmeen Samy – Final Revision – 01003703872