Purchasing Term Life Insurance to Reach a Bequest Goal: Time-Dependent Case

Abstract

We consider the problem of how an individual can use term life insurance to maximize the probability of reaching a given bequest goal, an important problem in financial planning. We assume that the individual buys instantaneous term life insurance with a premium payable continuously. By contrast with Bayraktar et al. (2014), we allow the force of mortality to vary with time, which, as we show, greatly complicates the problem.

To appear in North American Actuarial Journal. Keywords: Term life insurance, bequest motive, deterministic control. arXiv admin note: text overlap with arXiv:1402.5300