Unobserved Heterogeneity; Process and Parameter Effects in Life Insurance

In this paper life insurance contracts based on an urn-of-urns model, with age-at-death as observable variable, are analyzed. Premium payment functions based on the principles of “equivalence on an individual level” and “equivalence on a group level” are compared. Both the aggregate loss and its second moment for an individual contract are split in several components. Life insurance contracts are compared with non-life insurance contracts, also with respect to solidarity.