A model to design and price a unit linked micro life product for domestic house workers (housemaids)

Abstract

The main objective of this dissertation report project was to develop a model for designing and pricing a unit-linked micro-life product. The unit-linked endowment product provides a benefit on the death of the policyholder within the specified term (life insurance coverage) as well as offers the investment benefit as a medium from where the policyholder can save money in their early years of adulthood catering to the unique needs and challenges faced by domestic house workers(housemaids) as they progress with their working life. The pricing and profit testing technique was adopted in the design of the model for the calculation of appropriate premiums that would be paid by each eligible individual based on certain factors. Factors considered for this model were mainly age and sex other factors include the demographic profile of housemaids, their income levels, and their specific financial goals and aspirations. Actuarial techniques were used and assumptions were taken for an interest rate of 15.347%, a risk discount rate of 18%, initial expenses of 0.05% and renewal expenses 0.015% of the sum assured, initial commission of 20% and renewal commission 2% of the premium, a management charge of 1% of the premium and mortality based on Uganda Tash Mortality life tables to compute the premiums by balancing the equation of value to zero. This process helped to determine the appropriate premium to be charged for that specific individual and the profit testing process involved determining the profit margin which was done in Microsoft Excel for a twenty-year-old for both male and female. Generalization of the model was done in Python to be able to generate results for various ages over various terms. A sensitivity analysis was done in Microsoft Excel to understand the relationship between premiums and profits for various ages over all the terms. The product was more profitable for a 20-year-old male across all the terms compared to a 20-year-old-female as showed by the analysis in their profit margins. The profit margin increases as the term increases from 5-10 for both males and females across ages therefore a 10-year term is the most profitable compared to other terms and ages. This cuts across either of the genders as the oldest groups registered the lowest profit margins overall.