Group Insurance, Skwire, Daniel D., 7th Edition - Ch. 25: Estimating Disability Claim Costs

Use this thread to discuss ANYTHING and EVERYTHING related to this syllabus reading.
Some possible questions include:

  • How can this reading be tested?
  • I don’t understand a specific topic/formula - Can we discuss this?
  • This reading gives me nightmares. Can we talk through it a bit?

Good luck!

I am trying to better understand the formula for net monthly premium which equals:
Incidence Rate * Sum over the benefit period of (Benefit_tContinuance_tInterest Discount_t).

So in this formula, t is the month in question right?
If t = 1, for example, then we are multiplying the Benefit for the 1st month * Probability they are disabled that 1st month * discount to time t=0? and then we would add that to Benefit for the 2nd month * probability they remained disabled for the 2nd month * discount to time t=0, and so on?

Looking at question 1 of the Fall 2011 Group and Health D&P Exam, Morning session, if we are told $800 is the claim cost per claimant, how is it that this is equivalent to this part:
Sum over the benefit period of (Benefit_tContinuance_tInterest Discount_t) ?

Thanks.

I don’t think that formula really comes into play much in this problem. First of all the claim costs of $800 is given in the problem, so you don’t have use the formula to calculate it. Second, the problem says that the plan provides a flat monthly benefit & that the continuance and interest rates are the same between the two plans. That means that in order to convert costs from one plan to the other, all you need to do is adjust for the benefit amount & the risk factor (i.e. incidence rate).

But to answer your question, I think your interpretation is correct except that it doesn’t necessarily need to be months. The time interval will be specified in the problem. I haven’t really done any problems yet where this formula is applied, so someone else can either confirm or deny.

I’ve done problems where this is applied. The time interval certainly doesn’t have to be monthly.