 Assessing the Risk Potential of Premium Payment Options in Participating Life Insurance ContractsNadine Gatzert and Hato Schmeiser Journal of Risk & Insurance, 2008, vol. 75, issue 3, 691-712 Abstract: Most life insurance contracts embed the right to stop premium payments during the term of the contract (paid‐up option). Thereby, the contract is not terminated but continues with reduced benefits and often provides the right to resume premium payments later, thus increasing the previously reduced benefits (resumption option). In our analysis, we start with a basic contract with two standard options, namely, an interest rate guarantee and annual surplus participation. Next, in addition to the features of the basic contract, a paid‐up and resumption option is included in the framework. The valuation process is not based on assumptions about a particular policyholders' exercise strategy but instead assesses the risk potential from the insurer's viewpoint by providing an upper bound for any possible exercise behavior. This approach provides important information to the insurer about the potential hazard of offering the paid‐up and resumption option. Further, the approach allows an analysis of the impact of guaranteed interest rate, annual surplus participation, and investment volatility on the values of the premium payment options. Date: 2008 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:jrinsu:v:75:y:2008:i:3:p:691-712 Ordering information: This journal article can be ordered from Access Statistics for this article Journal of Risk & Insurance is currently edited by Joan T. Schmit More articles in Journal of Risk & Insurance from The American Risk and Insurance Association Contact information at EDIRC. |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.