Pricing Marriage Insurance with Mortality Dependence

Abstract

Accurate determination of the probability structure of the multistate model
is significant from the valuation and profitability assessment of insurance
contracts standpoint. This article aims to analyse the effect of spouses’
future lifetime dependence on premiums and prospective reserves for marriage
insurance contracts. As a result, under the assumptions that the evolution of the
insured risk is described by a nonhomogeneous Markov chain and the dependence
between spouses’ future lifetime is modelled by the copula, we derive formulas
for the elements of the transition matrices. Based on actual data, we conduct
a comparative analysis of actuarial values for three scenarios related to future
lifetimes of husband and wife. We test the robustness of premium value to the
changing degree of dependency between spouses’ future lifetimes.