A pricing model for a single premium unit-linked endowment assurance policy

Abstract

The major objective of this study was to design a pricing model for a Single Premium Unit-Linked Endowment Assurance Policy for lives aged 20 years to 60 years of age. Other specific objectives related to this study were to design a product that achieves a profit margin greater than zero after 5 years as well as to carry out a sensitivity analysis that will determine the extent of change in the profit margin given a change in the key assumptions. The key assumptions made in this study were as follows: Risk discount rate of 16.27% per annum; Interest rate of 9.0% per annum; Unit Fund Growth rate of 10.0% per annum. The results of the profit test show that this product is more profitable with terms greater than 5 years for both genders. Profitability declined with increase in age. Results from the sensitivity analysis show that risk discount rate, commission and expenses are the most sensitive assumptions. They should be monitored regularly and re-pricing done if they exceed the acceptable range.