Abstract
The relevance of critical illness coverage and life insurance in cause-specific mortality conditions is increasing in many industrialized countries. Specific conditions on the illness and on death event, providing cheapest premiums for the insureds and lower obligations for the insurers, constitute interesting products in an insurance market looking to offer appealing products. On the other hand, the systematic improvement in longevity gives rise to a market with agents getting increasingly older, and the insurer pays attention to this trend. There are financial contracts joined with insurance coverage, and this particularly happens in the case of the so-called insured loan. Insured loans are financial contracts often proposed together with a term life insurance in order to cover the lender and the heirs against the borrower’s death event within the loan duration. This paper explores new insurance products that, linked to an insured loan, are founded on specific illness hypotheses and/or cause-specific mortality. The aim is to value how much the insurance costs lighten with respect to the traditional term insurance. The authors project cause-specific mortality rates and specific diagnosis rates, in this last case overcoming the discontinuities in the data. The new contractual schemes are priced. Numerical applications also show, with several graphs, the rates projection procedure and plenty of tables report the premiums in the new proposed contractual forms. The complete amortization schedule closes the work.
Highlights
In many industrialized countries, the progressive ageing process of the population determines a significant incidence of diseases, which strongly increase with age
This paper explores new insurance products that, linked to an insured loan, are founded on specific illness hypotheses and/or cause-specific mortality
The authors project cause-specific mortality rates and specific diagnosis rates, in this last case overcoming the discontinuities in the data
Summary
The progressive ageing process of the population determines a significant incidence of diseases, which strongly increase with age. Our focus is centered on the impact this subject has on financial contracts such as loans, in which a relevant role is held by the exposition to long-term biometric risks such as mortality and morbidity of the borrower. In the Basel Committee on Banking Supervision (2013), the Joint Forum essentially discussed about various risk elements, which, because of their impact on such contracts, can trigger “stress in the worst tail events” It was from this perspective that the document proposed a series of recommendations for policymakers and supervisors. In the Appendix A, we provide some results collected in tables and graphs concerning the empirical application
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