Mixed participating and unit-linked life insurance contracts: design, pricing and optimal strategy

In many countries, the decline in interest rates has reduced traditional participating life insurance contracts with investment guarantees and led to a shift unit-linked policies without guarantees. We design novel mixed contract splitting premium payments between fund. An additional guarantee fee is applied on return order increase of utility-based framework, using power utility prospect theory as preference functions, we show that product usually perceived more attractive than full either or contract. The beneficial for conservative investors interested stronger protection against losses. This also interesting from marketing perspective: By product, zero negative guaranteed can be avoided.