Life Insurance And Actuarial Science

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Introduction Life insurance refers to a contract made between an insured party normally referred to as an insurance policy holder and the insurer normally the insurance company. In such a contract the insurer promises the insured to pay the beneficiary of the insured a sum amount of fund upon the death of the insured, in return the insured pays some amounts in the form of premium to the insurance company. The premium may be paid monthly or annually. The insured may also opt to pay the amount as a lump sum in that payment is only made once (McCarthy & Mitchell, 2012) Life insurance and actuarial science Insurance company is an investment company that plans on making profits and avoiding losses. In this case of a contract the company takes a risk that may lead to great losses. For this reason, the insurance company requires to make great risk analysis of the same contract to minimize the risk it undertakes in the contract. It also requires analyzing investments in the industry and thus taking the best investment that maximizes the returns of the premium paid by the insurance holder. For the insurance to conduct the above analysis, it requires to conduct a lot of mathematical and statistical computation in relation to financial risk analysis and investment analysis, thus links the insurer with the actuarial science profession. Actuarial science is a field that studies that deals with mathematics and statistics associated with financial risk particularly in the pension firms and insurance firms. Here mathematics deals with the probability of uncertainty and statistics deal with modeling of processes based on observed data. This thus makes the actuarial science field the most applicable in the life insurance contract (Uratani, 2014). ... ... middle of paper ... ...ze the value of human life. Where the insured has not generated his expected specific amount that he expects for the beneficiary upon his death then the following to approaches are observed. The human life value approach may be adopted. This is whereby the value for the insured economic wealth at a given point in his life is generated. The second approach is the need analysis approach. The first approach does not project the actual needs that may arise upon the death of the insured and thus this method is applied to determine the claim of the insured. The two approaches require actuarial science basics. Conclusion. In conclusion, the insurance policy contract entirely depends on the actuarial profession for its analysis of the risk entailed in the process. This thus makes actuarial science a field that is most important in the conducting of life insurance contracts.
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