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Life Insurance, Analysis project
Transcript of Life Insurance, Analysis project
Death Benefit - The money you want given back if you die
Profit - Company's profit- put towards employee salaries, etc.
Chance of Death - Based on Mortality Tables/ Transition Matrix LIFE INSURANCE! CRAZY, RIGHT? The math behind Life Insurance Thanks for listening. Alex Poux
Beni Ran how your premium is calculated How much should the Company charge Beni? What is life insurance? Good question! How matrices are involved in this whole hodge-podge -allow computers to do the work/calculations
-defining trends on a country-wide basis
-classifying people according to characteristics
-organizing this information
-factors ranging from race, gender, genetics, etc. Conclusions It is a contract between the insured and insurer.
An insurer guarantees a sum of money upon death in exchange for a premium (regular installments paid to the insurer).
Factors such as probability of death (BIG factor) affect the price of your premium YOLO=REASON FOR LIFE INSURANCE Factors involved in calculating a premium Probability of death is the most important factor.
Age, gender, race, occupations and genetics affect your probability of death.
Actuaries calculate probabilities of death for different populations Don't buy life insurance if you're 95
Matrices are used to project expenses and organize data
Using mortality tables compiled by actuaries, premiums are calculated Mortality Transition Matrix! Types of Life Insurance Permanent:
Whole Life- Death benefit and
Universal- Whole Life w/
Variable - Buyer determines
-Expires after term ends
-Level / Decreasing Death Benefit Premium = (Death Benefit * Chance of Death + Profit) / Term Mortality rate
fitting you in
a stereotype! Premium = (Death Benefit * Chance of Death during Term + Profit)/Term After 6 years Beni's Premium Premium = (Death Benefit * Chance of Death during Term + Profit)/Term I.E. 3-year Term Insurance returning $250,000 for Beni (95 years old) [T]^3 * Death benefit = Expected Cost How Much Will it Cost The Insurance Company? (Beni is 95) They have to pay him this : Cost to Company / Term = Fair Premium Premium = (Death Benefit * Chance of Death + Profit) / Term $140180 / 3 years = $46726.67 per year Unfair Premiums! put towards Administrative Costs & Company Funds Profit (Accounting for Profit) I.E. Beni's Premium if :
-It takes 2 employee work-hours to insure him
-Employees are paid $16/hour
-The company wants to put $50 int the company's funds for each policy sold Premium = Fair Premium + Profit / Term $46726.67 per year + $27.34 per year = Profit per Term = (2 hours * 16 dollars per hour + $50) / Term = $27.34 per year $46754.01 per year After 2 years After 4 years Apparently math jokes are encouraged But they're not that funny...