A life insurance company is considering offering a new life insurance product that will pay a death
Question:
A life insurance company is considering offering a new life insurance product that will pay a death benefit of $500,000 to a policyholder's beneficiaries upon the policyholder's death. The company plans to invest the premiums it receives from policyholders in a portfolio of bonds with a current market value of $10 million. The bonds have a yield to maturity of 5% per annum and a duration of 8 years. The company's actuary has estimated that the average lifespan of the policyholders who will purchase this product is 20 years. The company wants to ensure that it has sufficient assets to cover the expected future liability associated with the policy. What is the minimum premium the company must charge to ensure that it can meet the expected future liability? Show all calculations.