Document Type : Original Research Paper
Author
Assistant Professor, Department of Personal Insurance, Insurance Research Center, Tehran, Iran.
Abstract
BACKGROUND AND OBJECTIVES: One of the strategies to increase the penetration rate in the country's insurance industry is to create diversity in life insurance products. In this context, one of the expanding life insurance products is joint life insurance, which can cover two individuals under a single policy in two scenarios: upon the first death and upon the second death or the last survivor. Joint life insurance policies are designed to cover the risk of death for couples or business partners in the event of one spouse’s death. In fact, these types of life insurance policies cover two lives, but the premium collected from the policyholder is approximately equivalent to the premium of a single life insurance policy. Based on the lower premium of joint life insurance compared to two individual life insurance policies, this policy will be economically beneficial for young couples. To purchase joint life insurance policies or two individual life insurance policies, many factors should be considered, including the family budget, the expected coverage amount, and the future of the spouse or children. Although two individual life insurance policies offer more coverage, paying two premiums in a family requires a high income. Therefore, for couples who do not have an ideal economic situation, it is recommended to use joint life insurance policies. This paper aims to introduce joint life insurance as a product that has growth potential in the life insurance industry in Iran, focusing on the design of new products and calculating premiums and joint death probabilities based on the technical foundations of Regulation 107 of the Supreme Insurance Council.
METHODS: In this study, actuarial calculations and net premium rates for four classic types of joint life insurance have been examined. Based on this analysis, joint death probabilities have been extracted using the TD88-90 table and the national life table of Iran (ILT1400) and compared accordingly. Also, the impact of life table on the revenue and profit of insurance company has been investigated.
FINDINGS: The joint death probabilities using the national life table of Iran are significantly lower. Additionally, among the four classic types of joint life insurance, term joint life insurance has the lowest premium rates. In joint life insurance policies, such as whole life and joint endowment insurance, premiums increase with age due to the rising probability of death. However, in joint pure endowment life insurance policies, premiums decrease with age because, as individuals grow older, their probability of death increases while their probability of survival decreases. Therefore, lower premiums should be charged for these age groups in pure endowment life insurance policies. Next, we examined the impact of premium reduction on the revenue of an insurance company. For this purpose, an analytical model was used, which includes simulating various premium scenarios and calculating their associated financial results. First, it is assumed that there is a five-year joint term life insurance policy with annual premium payments, and 1000 customers have purchased this policy. To identify the impact of premium reduction, two different premium rates were considered: the rate derived from the local life table and the rate derived from the life table of France. Additionally, to calculate revenue and profit, we used stepped technical interest rates in accordance with Regulation 107 of the Supreme Insurance Council throughout the policy term, which are determined separately for each year. These rates are as follows: 16% for the first two years, 13% for the next two years, and 10% for the final year in the 5-year policy. To calculate revenue, we first converted all received premium funds to present value, considering the relevant interest rates. This helps us understand how received premiums are affected by different interest rates and what their impact on the company's final revenue will be. Then, using established formulas, the company's revenue and profit were calculated. In these calculations, the loss ratio (approximately 49% based on the statistical yearbook of the insurance industry) and operational costs (20%) were also taken into account to observe more accurate results.
CONCLUSION: Joint life insurance leads to a reduction in premium amounts, making it more economical compared to purchasing two separate individual life insurance policies for individuals. In the context of developing this product, the following recommendations may be implemented by the insurance industry: offering non-savings joint life insurance policies to diversify life insurance products, approving the general conditions for non-savings joint life insurance policies, and applying discounts to encourage more individuals to purchase joint life insurance.
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