A New Method to Evaluate Equity-Linked Life Insurance

Abstract

This paper provides a new method to appraise equity-linked life insurance products. Using the mixture mortality model to determine the death and survival probability, we calculate the premium for a death claim and a survival claim for equity-linked life insurance policies. The numerical result shows that the premium is higher than that calculated using the Brennan and Schwartz model. As a mixed survival function can solve the problems of the rigid application in Life Tables, the premium from our method is more accurate for life insurance. Thus, our method can help life insurance companies avoid potential losses from mispriced products. Keywords: Equity-Linked Life Insurance, Mixture Mortality Model, Mortality Rate To cite this document: Ming-Shann Tsai, Shih-Cheng Lee, Jiun-Lin Chen, and Shu-Ling Wu, "A New Method to Evaluate Equity-Linked Life Insurance", Contemporary Management Research, Vol.10, No.1, pp.23-32, 2014. Permanent link to this document: http://dx.doi.org/10.7903/cmr.10397