Lifelong Health Insurance Covers with Surrender Values: Updating Mechanisms in the Presence of Medical Inflation

30 Pages Posted: 28 Apr 2015 Last revised: 17 May 2017

See all articles by Jan Dhaene

Jan Dhaene

Katholieke Universiteit Leuven

Els Godecharle

KU Leuven - Department of Applied Economics

Katrien Antonio

KU Leuven; University of Amsterdam

Michel Denuit

Catholic University of Louvain

Date Written: April 14, 2015

Abstract

For lifelong health insurance covers, medical inflation not sufficiently incorporated in the level premiums determined at policy issue requires an appropriate increase of these premiums and/or of the corresponding reserves during the term of the contract. This premium and/or reserve update is necessary to maintain the actuarial equivalence between future health benefits and withdrawal payments on the one hand, and available reserves and future premiums on the other hand. In Vercruysse et al. (2013), premium and reserve indexing mechanisms were proposed in a discrete-time framework where medical inflation is only taken into account expost as it emerges over time and where the reserves are not transferable in case of policy cancellation. In this paper, we extend this work by investigating the more general situation where a surrender value is paid out in case of policy cancellation. Reserve-based as well as premium-based surrender values are considered.

Keywords: medical expense insurance, lifelong contract, medical inflation index, withdrawal, surrender value

Suggested Citation

Dhaene, Jan and Godecharle, Els and Antonio, Katrien and Denuit, Michel, Lifelong Health Insurance Covers with Surrender Values: Updating Mechanisms in the Presence of Medical Inflation (April 14, 2015). Available at SSRN: https://ssrn.com/abstract=2599928 or http://dx.doi.org/10.2139/ssrn.2599928

Jan Dhaene (Contact Author)

Katholieke Universiteit Leuven ( email )

Naamsestraat 69
Leuven, 3000
Belgium

Els Godecharle

KU Leuven - Department of Applied Economics ( email )

Leuven, B-3000
BELGIUM

Katrien Antonio

KU Leuven ( email )

Leuven, Vlaams-Brabant

HOME PAGE: http://www.econ.kuleuven.be/katrien.antonio

University of Amsterdam ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Michel Denuit

Catholic University of Louvain ( email )

Place Montesquieu, 3
B-1348 Louvain-la-Neuve, 1348
Belgium

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