Exotic Unit-Linked Life Insurance Contracts

Abstract

This article integrates aspects of traditional insurance with advances in financial economics, yielding proper valuation and premium assessments of insurance benefits linked to various financial assets. Several new types of unit-linked life insurance contracts are discussed with substantial potential for real-life applications. Compared to usual unit-linked products, these contracts offer added flexibility and/or altered exposure to financial risk for the insured and/or the insurer. The single premiums of these policies are calculated as expectations under a risk adjusted probability measure (equivalent martingale measure), satisfying no-arbitrage conditions in financial markets.

JEL Classification: G22