WSEAS Transactions on Mathematics
Print ISSN: 1109-2769, E-ISSN: 2224-2880
Volume 20, 2021
A Study of Life Internal Rate of Return
Authors: Sorrawee Roenganan, Masnita Misran, Nattakorn Phewchean
Abstract: Life insurance, not included as a part of the legal obligation in some countries, is one of the investment
approaches that might not stand high in the public favor for some people since this is a type of investments that
the investor cannot know beforehand the exact return, and the returns completely depend on uncertainty of the
policy specification in some circumstances. Similar to the other kinds of investment, investors in life insurance
products have been seeking a tool for investment evaluation. However, currently there are no accurate tools that
can provide the value of the investment in a life insurance product sensitive to the uncertainty. Internal rate of
return is the basic tool that buyers or bankers may apply in order to find the rate of return of this type of
investment. The investment decision tool is one of the most important keys that investors have utilized upon
making their decisions on investments. Therefore, in this research, we propose a new mathematical model with
applications for investment decision, being an extension of the internal rate of return by taking into account the
life probability, considering different types of life insurance policies, and other factors specified on life insurance
investments such as the premium, the death benefit, the maturity value, the sum insured, the lapse rate, the
surrender value, the annuity certain, and the lapse rate with different genders and ages. This newly proposed
model is named as the "Life Internal Rate of Return" or Life-IRR model. By using the sample data for both males
and females aged 30 years old with expected benefit of 100,000 baht for different types of life insurance policies
which are endowment plan, whole life plan and retirement plan, the results show that, for males, the highest life
rate of returns is that obtained from the retirement plan (3.633692%), and the lowest life internal rates of returns
is that obtained from the endowment plan (2.384443%), while the whole life plan offers moderate life rate of
returns of 2.427941%. For females, the highest life rate of returns is that obtained from the retirement plan
(3.335189%), and the lowest life internal rates of returns is that obtained from the whole life plan (2.104658%),
while the endowment plan offers moderate life rate of returns of 2.308062%. The sensitivity analyses of the life
internal rates of return perform the natural characteristics of life insurance
Search Articles
Pages: 122-133
DOI: 10.37394/23206.2021.20.13
WSEAS Transactions on Mathematics, ISSN / E-ISSN: 1109-2769 / 2224-2880, Volume 20, 2021, Art. #13