Joint-Life Insurance Premium Model Using Archimedean Copula: The Study of Mortality in Indonesia

What is it about?

This study introduces a joint survival model for calculating joint life insurance premiums using Archimedean Copula to account for mortality dependence between spouses. Traditional models assume independent mortality rates, which do not reflect real-world risks. By linking the marginal distributions to their joint distribution, this model more accurately captures the dependency between husband and wife’s mortality rates. It enables premium optimization by considering various correlation levels, offering a more realistic and efficient approach to joint-life insurance pricing.

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Photo by Lukas Blazek on Unsplash

Photo by Lukas Blazek on Unsplash

Why is it important?

This research is important because it provides a more realistic approach to calculating joint life insurance premiums by accounting for the mortality dependence between spouses, which is often overlooked in traditional models. In the insurance world, this is crucial for creating more accurate and efficient pricing models that can reduce the risk of incorrect calculations and offer premiums that better align with the actual risks. Two key findings from this research are: a) joint life insurance premiums can be optimized by considering the mortality dependence between spouses, and b) using Copula to link the marginal mortality distributions of partners reveals significant differences in pricing compared to models assuming independent mortality.

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