Dependence of mortality risks of two lives in the valuation of life annuity and life insurance functions

• Main Authors: Ocampo, Shirlee R., Mirandilla, S. J., Tan, D. G., Ocampo, B.
• Format: text
• Published: Animo Repository 2008
• Subjects: Life insurance—Mathematics; Life annuities—Mathematics; Applied Mathematics; Insurance
• Online Access: https://animorepository.dlsu.edu.ph/faculty_research/9430
• Institution: De La Salle University

Most insurance companies have yet to offer products with the assumption of dependence of mortality risks of two lives. This resesarch studies the effect of dependence of the mortality risks of two lives in the valuation of life annuity and life insurance functions. Point estimates of the actuarial present values of the life annuity and life insurance functions under the dependence assumption were calculated and compared with those under the independence assumptions. Results show that the actuarial present values of the last-survivor life annuity-due functions can be as much as 10% less expensive under the dependence assumption when the two lives are less than 70 years of age. Conversely, the actuarial present values of the last-survivor life insurance functions can be as much as 144% more expensive under the dependence assumption when the two lives are less than 70 years of age.