Premium calculation of whole life insurance with critical illness premium waiver

Whole life insurance is a type of insurance that offers lifetime protection to the policyholder as long as the policy remains in force and pays out benefits upon the policyholder’s death. In Indonesia, the features of whole life insurance products have evolved to include a premium waiver benefit for active policies if the policyholder is diagnosed with a critical illness. This research discusses the premium calculation of whole life insurance product with critical illness premium waiver, focusing on four prevalent critical illnesses in Indonesia in 2022: heart disease, cancer, stroke, and kidney failure. The premium calculation is derived from modeling multiple state models consisting of 3 states: healthy, critically ill, and dead, whereby the transition intensity parameter values and transition probabilities between states are assumed to be stationary. The premium modeling obtained will be further developed based on gender and age. The results show that the annual premium for male policyholders is higher than for female policyholders at the same entry age. Then, as the payment duration for premium lengthens, the annual premium paid by the policyholder will be lower, but the total premium amount will be higher. Notably, the premium for products with critical illness premium waiver is 2-3 times greater compared to products without this feature.