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EZ 56: Expected death strain formula (life): when annuity payable on death
or “Calculating the value of annuities paid on death for life insurance policies”
You could also call this:

“Calculating insurance payouts for living to a specific age or date”

This part of the law is about how to calculate expected death strain for life insurance policies that pay an annuity if you live to a certain date or age. Here’s what you need to know:

When a life insurance policy says you’ll get regular payments (an annuity) if you live to a specific date or age, the insurance company has to do some special calculations. They use something called an expected death strain formula.

In this formula, the insurance company has to use a ‘claim probability’. This is worked out as if the payments depended on you dying, even though they actually depend on you living.

The insurance company also needs to work out an ‘opening sum assured’. This is the value of all the future payments you might get, calculated as if you had lived to the date or age when the payments would start. They use the same method to work this out as they use for their other calculations that year.

Remember, this is just about how the insurance company does its sums. It doesn’t change what you’ll actually get paid if you live to the date or age in your policy.

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Next up: EZ 58: Expected death strain formula (life): when partial reinsurance exists

or “Adjusting life insurance calculations when partial reinsurance is involved”
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Part E Timing and quantifying rules
Terminating provisions: Expected death strain formulas

EZ 57Expected death strain formulas: when annuity payable on survival to date or age specified in policy

  1. This section applies when, and to the extent to which, a life insurance policy provides for the payment of an annuity the start of which is contingent on the life insured’s survival to the relevant date or age specified in the policy.

  2. In using the relevant expected death strain formula, the life insurer must use claim probability as defined in section EZ 54(4), without regard to the fact that the payment of the annuity is not contingent on the life insured’s death.

  3. In using the expected death strain formula (life), the life insurer must use as opening sum assured the present value (net) of the annuity. The present value (net) is determined—

  4. at the relevant date or age specified in the policy; and
    1. on the assumption that the life insured survived to the date or age; and
      1. using the same assumptions and bases of calculation as are used to calculate the life insurer’s actuarial reserves for the income year.

        Notes
        • Section EZ 57: inserted, on , by section 199(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
        • Section EZ 57 list of defined terms payment: repealed, on , by section 243 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).