ABSTRACT
This chapter presents a multi-state model developed to design the insurance contract introduced in Chapter 1, taking into consideration all possible life events affecting the insured household during the coverage period. Benefits are paid only when both general and specific policy conditions – defined through an ordered set of parameters – are satisfied.
The Bridging Household Life Insurance model extends the traditional structure of marriage insurance by incorporating various stages of the household life cycle. Accordingly, its probabilistic framework accounts not only for the future lifetimes of adult individuals (partners or spouses) but also for changes in the number and age of dependent children over the policy term.
A discrete-time approach is applied, with premiums and benefits realised at the end of each time unit. This chapter further outlines the financial structure of the product, including benefits and the interest rate.
A multi-state framework enables the application of matrix-based actuarial notation. It supports incorporating various contractual features such as waiting periods, deferral periods, different benefit types, and post-contract payments. By shifting the focus from lifetimes of insured to the broader household life cycle, the model introduces a novel approach to insurance cash flow modelling, integrating a contextual component into its probabilistic structure.
