Mathematical Modeling of Life Insurance Policies

Abstract

The Life Insurance Company calculates the policy price with intent to recover claims to be paid and administrative cost and to make profit. The cost of insurance is determined using Mortality Table calculated by Actuaries. The insurance companies receive premiums from the policy owner and invest them to create a pool of money from which to pay claims and finance the insurance company’s operations. Rates charged for life insurance increase with insured’s age because statistically people are more likely to die as they get older. In this paper, we discussed about different insurance policies including expenses. We have also discussed about the annual premium rates of both endowment plan and three-payment plans. We have used mathematical programming to calculate the premium rates.