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Effect of Mortality Selection on Life Insurance Premium Valuation

Abstract

The study examines the effect of mortality selection on life insurance premium valuation, focusing on how differences in mortality experience among insured individuals influence the calculation of life insurance premiums. Mortality selection occurs when the mortality experience of insured persons differs from that of the general population because individuals who purchase insurance may have different risk characteristics. Accurate consideration of mortality selection is therefore important for estimating expected claims and determining appropriate life insurance premiums. The study will investigate the effect of mortality selection on life insurance premium valuation by examining differences between selected mortality experience and standard mortality assumptions. It will assess how variations in mortality rates among policyholders influence the present value of expected death benefits and the premiums required to finance those benefits. The study will also examine the implications of mortality selection for actuarial valuation of life insurance contracts. The analysis will focus on mortality rates, survival probabilities, age at entry, policy duration, mortality experience, expected death benefits, and present values of future benefits. Actuarial life tables and mortality models will be applied to estimate the financial effect of mortality selection on life insurance premiums. Different mortality assumptions may be compared to determine how changes in mortality experience affect premium valuation. A quantitative research approach will be adopted for the study. Relevant mortality and life insurance data will be obtained from appropriate secondary sources. Mortality rates, survival probabilities, expected benefits, and present values will be calculated using actuarial techniques, while descriptive statistics and comparative analysis will be used to examine differences in premium estimates under alternative mortality assumptions. The study is expected to reveal that mortality selection can produce measurable differences in life insurance premium valuations. More favourable mortality experience among insured policyholders may result in lower expected death claims and consequently lower premium requirements, while less favourable mortality experience may increase expected liabilities and premium requirements. The findings may also demonstrate that the effect of mortality selection varies according to policy duration, age structure, and mortality assumptions. The findings are expected to provide useful information for life insurers, actuaries, underwriters, and insurance analysts in evaluating mortality assumptions used in premium valuation. Improved understanding of mortality selection may support more accurate estimation of expected benefits, appropriate premium setting, and better management of life insurance liabilities. The study may also assist insurers in reviewing mortality assumptions in response to observed policyholder mortality experience. The study concludes that mortality selection is an important consideration in the actuarial valuation of life insurance premiums because differences in mortality experience can affect expected benefits and premium requirements. It is therefore recommended that life insurance companies regularly analyse policyholder mortality experience and incorporate appropriate mortality assumptions into premium valuation to improve pricing accuracy and ensure adequate provision for future claims.

Keywords: Mortality selection, life insurance, premium valuation, mortality rates, survival probabilities, actuarial valuation, life tables, expected benefits, death benefits, policy duration, age at entry, mortality assumptions, insurance premiums, actuarial pricing, life insurance liabilities.