Why Hold Reserves ?

[sahildh]

In page no. - 21 of chapter 5 it says -
"Although on average the cost of the benefit is increasing over the term, the
premiums that pay for these benefits are level. This means that the premiums
received in the early years of a contract are more than enough to pay the benefits
that fall due in those early years. But in the later years, and particularly in the
last year of an endowment assurance policy, the premiums are too small to pay
for the benefits. "
Why does it say that the premiums are sufficient to pay for benefits in the previous years, rather the premiums are calculated on the basis of benefits and are spread over the specified term period; and also the benefits are fixed in advance at the beginning of the insurance contract ?
Can someone please explain me the meaning of this sentence ??​

 

[Hemant Rupani]

Well! We Start with a numerical example,
Consider an endowment policy for term 20 years to some identical policyholders.
Let Benefit be fix 100,000 but it's basis is AM92 @4%
Net Premium pa(for simplicity)=100000×0.46433/13.927=3334.03
Now, you can see that(in page 78 of tables) for age less than 53, Expected cost of benefit per year is lower than premium. From 53 Excpected cost of benefit per year outweighs premium.

Note: "the premiums are calculated on the basis of benefits and are spread over the specified term period; and also the benefits are fixed in advance at the beginning of the insurance contract" doesn't show the need for holding reserves.