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Thread: Regarding the IPC Reserves

  1. #1
    Actuary.com - Level II Poster
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    Regarding the IPC Reserves

    I am reading the book "Valuation of Life Insurance Liabilities" by Tullis and Polkinghorn. I was a bit confused with the discussion of "immediate payment of claims (IPC) reserves". According to the book, this reserve is held because death benefits are actually paid near the time of death instead of at the end of the year. (Under the assumption that death benefits are payable at the end of the policy year of death).

    Further, the book stated that "No IPC reserve is required for policies which provide for payment of death claims at the end of the policy year of death.." I was wondering if there's a conflict in the discussion of IPC reserves.

  2. #2
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    No conflict.

    If the policy form actually states that claims are paid at the end of the year (an unusual policy) then you don't need the additional reserve.

    Usually the form allows for payment at moment of death/notification (hence the "immediate" in IPC). Since the reserve formula assumes death at the end of the year, you must hold an IPC to account for the fact that there's a timing difference between the formulaic calculation and the actual mechanics of the claims payment.

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