A life office has decided to introduce a new stricter medical examination for all its prospective policyholders. Consequently, it expects that the mortality of lives accepted on "normal terms" will be lighter than before. Previously, this mortality was in accordance with the AM92 Select table. Now, it is expected to be zero for
the first two years of the contact, reverting to AM92 Ultimate rates thereafter. Premiums are to be revised for the new mortality assumptions but with other
elements of the office premium basis unchanged. Explain, with reasons, whether the premiums for the following contracts with benefits payable at the end of year of death would be: considerably higher, slightly
higher, slightly lower or considerably lower than before.
a 3-year annual premium term assurance for a 30 year old with sum assured of
£250,000.
b) 3-year annual premium endowment assurance for a 90 year old with sum
assured of £250,000.