Application of Copula in Life Insurance
In traditional literature, the remaining lifetime of individuals in multiple-life distribution is assumed to be independent. But some empirical studies showed that this assumption is more than what is in fact rooted for the convenience of computation. For solving this problem, copula models are very appropriate tools for assessing the relationship between two lifetimes. In this paper, based on Kendall correlation between two lifetimes by copula models, life insurance reserves have been calculated using the lifetime table used in Iran's insurance industry. These calculations have been
carried out under some Archimedean copulas for "survival of both individuals" status. Our estimation results indicate that insurer reserves with using Archimedean copula are greater than independence condition. So, according to this result, considering the association between two lifetimes for calculating the optimal reserves by the insurer is highly recommended.
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