Life insurance companies also need extra reserves in case death claims
become larger than assumed. This happened during the great flu epidemic of
1918. Some life insurance companies had concerns about meeting their life
insurance claims.
You can see why life insurance companies have large reserves. These
reserves are not “spare cash” to be used for various purposes. The insurance
company requires them in order to meet its contractual obligations to its
policyholders and their beneficiaries.
In these examples we have used the same interest rate to discount all pay-
ments. You could use different interest rates for different payments, depend-
ing on when they were due. This would complicate the job, but the equations
are basically the same. Computer usage ...