Pricing life insurance premiums using Cox regression model

Abstract

The standard mortality rate usually determines the life insurance premium. In this paper, the mortality rate will be estimated by involving observable risk factors such as gender and smoking status. For that purpose, the Cox regression model is applied. The partial maximum likelihood is used to estimate the parameters of the model and the Nelson-Aalen estimator is used to estimate the baseline hazard function. Then, we will calculate individual life insurance premiums based on the estimated value of the mortality rate. The result is that the amount of single net premiums of smokers is higher than that of non-smokers.