A Design of a Pricing Model for an Endowment Assurance Product with a Last Expense Rider Incorporated

Abstract

This product was designed to pay out a sum assured on the event of its maturity and on the event of death with a last expense benefit inclusive on death of the policyholder.

The profit testing approach was executed in the designing process of this product however there were several steps taken for example determining of the assumptions like the interest rate and risk discount rate, the expenses, mortality tables, and surrender rates.

The results of the calculations done using the profit testing approach indicates that a 55-year-old male pays a monthly premium of UGX 98,156 for a 10-year policy which pays out a sum assured of UGX 10,000,000 on maturity of the policy and on the event of death together with a last expense benefit of UGX 1,500,000 provided that the policyholder dies within the term of the policy.

When the mortalities of either Male lives or female lives are high, high premiums are charged and low profits are observed. The KE 2007-2010 mortality table used in this product indicates that female lives have high mortalities from 16-22 and from 50-80 years. However, that does not mean that the calculations implemented are wrong since other Standard Mortality tables can be used on condition that they are related to the mortality for the Ugandan citizens.