On Pricing of Unemployment Insurance Assuming Non-Zero Mortality For Employees With Application to the USA Economy

Abstract

Unemployment insurance may be availed to those employees still employed but may become temporary unemployed for some short period of time before returning to employment. In a recent study an approach for valuing the benefits and thus pricing the policy was derived, it results in a lower premium than the one proposed for the states by the federal government of United States of America (USA). The model, however assumes zero mortality for the lives involved. In this study the zero mortality assumption is not made and further, the probability mass function of the duration of unemployment is incorporated directly into the modeling. The new approach is formulated basing on the actuarial expected present value ‘ benefit-event’ benefits valuation method and the payment of premiums conform to a life annuity payment. The new premium is 4.07 %, less than the 5.1% reported in the recent study, and much less than the 6% recommended by the USA federal government.