Mortality Projection on Indonesia's Abridged Life Table to Determine the EPV of Term Annuity

Abstract

The life insurance industries usually use the Life Table for the valuation process, especially in calculating premiums and policy values of a policy. However, the Life Table is rarely updated; and it may even take years before they are updated. This happens because the insurers believe that the information in the Life Table is still related to the current state of a country and for the next several years. In fact, data and information related to mortality rates in a country are constantly changing and always being updated annually. Therefore, as an approach, researchers use the projection of mortality to approach the mortality rate in the future. Thus, future mortality data can be predicted so that better policies can be made by the governments or insurance industries. In this study, the Abridged Life Table of Indonesia is used in the projection of mortality for both sexes (male and female) of the population in Indonesia. The results of mortality projection are then used to calculate the Expected Present Value (EPV) of a term annuity-due under uniform distribution of deaths (UDD) for several values of  and ages. The results obtained show that there is a decrease in the value of the mortality rate in the next few years. Therefore, it can be assumed that there is a possibility for longevity risk to occur in the future.