Study and Analysis of Credit Life Insurance Premiums for Loans with Flat and Effective Interest Rate

Abstract

Credit life insurance is a type of life insurance designed to pay off a borrower's remaining debt in the event of their death. It is a collaborative product between a bank and an insurance company, offering the benefit of loan repayment to the bank in the event of the death of the borrower (debtor). The repayment includes the outstanding debt and accrued interest. This study aims to analyze credit life insurance premiums for loans with flat and effective interest rates, and explore how the borrower's age and loan term affect these premiums. The bank offers loans with a fixed interest rate of 1.25% per month (15% per annum). The effective interest rate is 2.4% per month (28.8% per annum) for a loan term of 24 months. The method used is a quantitative approach, and uses the principle of equality so that the company's obligations are equal to the rights received by participants. The results show that credit life insurance premiums for flat and effective interest rates are almost the same. However, the premium increases significantly as the participant's age increases and further increases as the loan term progresses.