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All Journal BAREKENG: Jurnal Ilmu Matematika dan Terapan
Aini, Nadhira Fajri
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Computer Science & IT Control & Systems Engineering Economics, Econometrics & Finance Energy Engineering Mathematics Mechanical Engineering Physics Transportation

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MULTIPLE STATE MODEL FOR PREMIUM CALCULATION OF THE ELDERLY LONG-TERM CARE INSURANCE Aini, Nadhira Fajri; Ruhiyat, Ruhiyat; Erliana, Windiani
BAREKENG: Jurnal Ilmu Matematika dan Terapan Vol 19 No 4 (2025): BAREKENG: Journal of Mathematics and Its Application
Publisher : PATTIMURA UNIVERSITY

Show Abstract | Download Original | Original Source | Check in Google Scholar | DOI: 10.30598/barekengvol19iss4pp2443-2454

Abstract

As Indonesia enters an ageing population phase—with 12% of its population categorized as elderly—the need for financial protection in later life is increasingly urgent. The elderly population faces declining economic productivity, increased health risks, and a growing need for long-term care support. To address this, the present study develops an actuarial framework for calculating net annual premiums for elderly long-term care (LTC) insurance using the equivalence principle and a five-state multiple state model. Unlike previous research that focused on critical illness insurance, the proposed model reflects elderly care needs more realistically by incorporates transitions into and out of dependency where the elderly need assistance to perform daily activities. The results show that premiums rise significantly with later enrollment ages due to higher dependency and mortality risks along with shorter contribution periods. Furthermore, cash flow simulations based on 500 life table iterations demonstrate that LTC insurance can remain financially sustainable when accurately priced and supported by stable investment returns. This study offers a novel actuarial approach to developing sustainable LTC insurance products for Indonesia’s ageing population.
Co-Authors Erliana, Windiani Ruhiyat