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Effect of Increasing Assurance Benefits on Actuarial Reserve Requirements

Abstract

Increasing assurance is a form of life insurance in which the death benefit increases progressively over the duration of the policy. This benefit structure creates changing financial obligations for the insurer because the amount payable upon the occurrence of the insured event may increase as the policy progresses. Actuarial reserves are therefore essential for ensuring that sufficient funds are available to meet future obligations arising from increasing assurance benefits. This study will examine the effect of increasing assurance benefits on actuarial reserve requirements. It will assess the extent to which variations in the level and pattern of increasing benefits influence the amount of reserves required to meet future life insurance liabilities. The study will also examine how increasing assurance benefits affect the actuarial valuation of insurance contracts throughout their policy terms. The study will focus on increasing benefit amounts, policy duration, premium payments, mortality assumptions, interest rate assumptions, and actuarial reserve requirements. Actuarial valuation techniques will be applied to estimate reserves under different increasing assurance benefit structures. The analysis will consider expected future benefits and premium payments at different stages of the policy to determine their influence on reserve requirements. A quantitative research approach will be adopted for the study. Relevant mortality data, policy information, premium values, and actuarial assumptions will be analysed using life table functions, actuarial present value techniques, prospective reserve methods, and scenario analysis. Different patterns of benefit increases will be modelled to estimate their corresponding reserve requirements. The resulting estimates will be compared to determine the effect of increasing assurance benefits on actuarial reserves. The study is expected to reveal that increases in assurance benefits may lead to higher actuarial reserve requirements. As the potential benefit payable by the insurer increases, the expected future liability associated with the policy may also increase. The magnitude of the effect is expected to vary according to the rate of benefit increase, policy duration, mortality assumptions, interest rates, and premium structure. The study will be useful to actuaries, life insurance companies, underwriters, regulators, and researchers. It may assist insurers in accurately estimating reserves for policies with increasing benefits and improving the management of long-term insurance liabilities. The findings may also support effective life insurance product valuation, reserve monitoring, financial planning, and assessment of the sustainability of increasing assurance products. The study concludes that increasing assurance benefits can influence actuarial reserve requirements by changing the expected future financial obligations of life insurance companies. It is therefore recommended that insurers regularly evaluate increasing benefit structures using appropriate actuarial valuation techniques to ensure that reserve levels remain adequate throughout the policy term.

Keywords: Increasing assurance benefits, actuarial reserve requirements, life insurance, actuarial reserves, increasing death benefits, reserve estimation, actuarial valuation, life assurance, insurance liabilities, mortality assumptions, interest rate assumptions, policy duration, premium valuation, actuarial present value, life insurance reserves.