Designing and pricing a whole life assurance policy that pays on death, critical illness and disability
Muhairwe, Daniel Kasimbazi
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The entire project was based on an objective to design and price a whole life assurance product that pays on death, critical illness, and disability that is profitable (3% and above profit margin) to an insurer and gives an attractive sum assured to the insured in consideration of the premium paid. Profit testing technique was used as various actuarial computations were carried out to determine the sum assured amount for different ages and premiums. The key assumptions made include; Interest rate, Expenses, Risk Discount rate and Surrender rates. The profit testing technique helped to determine the profitability of the product. From the results of the profit test, the product is observed to be more profitable with females from around 20 years to around 48 years and more profitable with males for the other ages. It is further observed that the sum assured amounts reduce with increase in the age of the customer or proposer of the policy. It is also observed that sum assured amounts for females are higher than those of males from age 18 to around 40 years beyond which male sum assured amounts are higher. The results of the sensitivity analysis show that a slight change in discount rate greatly affects the profitability of this product thus it is the most sensitive assumption. In conclusion, the product is profitable across all eligible ages. However, two assumptions namely discount rate and interest rate should be monitored frequently because they are so sensitive to profitability upon small changes. A recommendation from me is that consideration should be made for mixture of gender and age so as to balance their effect on profitability. More research can be done to avoid any chance of loss.
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