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Age as a Risk Factor in Pricing Life Insurance for Singles and Couples
Actuaries have established a large range of models and techniques in order to carry out professed actuarial calculations.
By John Abonongo and Dr. Albert Luguterah
Jun. 13, 2016

Actuaries have established a large range of models and techniques in order to carry out professed actuarial calculations. This is to introduce reliable methods for the practical pricing of insurance contracts, i.e. for the calculation of premium, which the insured life should pay to the insurer, so that the latter will pay his or her next-of-kin the insured amount on the occurrence of the insured event.


Source: www.home.bt.com

In a recent paper by John Abonongo and Dr. Albert Luguterah, showed the pricing of life insurance for both singles and couples using life functions. They estimated the expected time until death, annuity payments, insurance payable and premiums using age as a risk factor. Employing the De Moirve’s law on mortality in estimating the rate of mortality, they realized that, the expected time until death for singles and couples were all increasing functions of age.

In the paper, John Abonongo and Dr. Albert Luguterah realized that, the premium for singles was increasing with age and the same with couples. But the premium for singles was higher than that of couples. In the case of couples, the premium for joint life was higher than the last survivor and that a change in the interest rate or force of interest and the benefit did not changed the trend in premium payments.

“No matter the interest and benefits, an insured for a life policy will have a high premium to pay when the age is high and vice versa and insurers of life products must consider the age of the insured to be able to apply the required premium payments.” John Abonongo and Dr. Albert Luguterah said.

John Abonongo and Dr. Albert Luguterah goes on to suggest that, “in considering two lives for life policy coverage, the ages of the two matters in that the age of either life can easily influence the premium payment especially in the case of joint life status in which the premium payments are higher than the last survivor status. Therefore, in pricing these insurances, the age of one is essential in determining the premium when other risk factors are held constant.”

Authors:

John Abonongo, College of Science, Department of Mathematics, Kwame Nkrumah University of Science and Technology, Kumasi, Ghana.

Dr. Albert Luguterah, Dean, Faculty of Mathematical Sciences, University for Development Studies, Navrongo Campus, Ghana.

A paper about this study appeared recently in the American Journal of Theoretical and Applied Statistics

Paper Link:
http://article.sciencepublishinggroup.com/html/10.11648.j.ajtas.20160503.17.html

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