REU 1999 – Pricing of a Child Rider

Currently, John Hancock’s policy holders have the option of paying an additional six dollars per thousand dollars of coverage in order to add a child rider onto their insurance policy. In the case of a child’s death, John Hancock pays the primary insured a death benefit. In the case of the death of the primary insured, John Hancock will then continue paying the annual fee of six dollars per thousand for the child until the child reaches age 21. The children also have the option of converting the policy to up to five times its original value without being underwritten once the children turn 21. This cost of six dollars per thousand dollars coverage remains constant regardless of the number of children in the household or the age of the children (after the children are older than 14 days).

However, this price of six dollars per thousand dollars of coverage was calculated thirty years ago using only very rough estimates. Thus, the goal of this project is to develop a method by which to accurately calculate the cost of this policy.