Open AccessThe Internal Rate of Return Model for Life Insurance Policies
Author(s) -
Mihir Dash
Publication year - 2016
Publication title -
asian journal of finance and accounting
Language(s) - English
Resource type - Journals
ISSN - 1946-052X
DOI - 10.5296/ajfa.v8i2.9721
Subject(s) - return of capital , life insurance , rate of return , internal rate of return , investment performance , endowment , endowment policy , actuarial science , holding period return , economics , investment (military) , maturity (psychological) , expected return , return on capital employed , risk–return spectrum , return on investment , mortality rate , modified internal rate of return , finance , human capital , microeconomics , capital formation , demography , economic growth , philosophy , law , portfolio , psychology , developmental psychology , epistemology , financial capital , political science , china , production (economics) , politics , sociology
Life insurance policies are no longer seen solely as a means of insuring life. Due to many new features introduced by life insurers, they are seen in the new light of serving savings and even investment purposes besides the basic purpose of insuring life. The present study discusses the rates of return given by different types of policies, and the effect of mortality on these rates of return across age, sum assured, and maturity period in each type of policy studied. The findings indicate that different types of policies give different rates of return and that mortality does have an effect on the rates of return. Endowment plans have higher rate of return with mortality incorporated, while for unit-linked investment plans, the rate of return is higher when it is treated purely as an investment instrument. The study also revealed that the unadjusted and mortality-adjusted rates of return follow a linear relationship that is very similar to the capital asset pricing model. The study opens a further scope of research by extending the methodology to include other relevant risk factors besides mortality, and for different types of policies across companies.