In a joint life policy, what is the basis for determining premium rates?

In a joint life policy, premium rates are determined based on the average age of the insured individuals. This approach reflects the combined risk profile of all insured persons in the policy. By calculating the average age, insurers can create a more accurate assessment of the overall risk and corresponding premium costs. This method allows them to balance the likelihood of claims across all insured parties, reflecting the potential for mortality as a function of age.

Using the average age is advantageous because it smooths out the risk associated with individual ages, which may vary significantly, and provides a more equitable pricing structure for the policyholders involved. As a result, rather than basing rates on the highest or lowest ages—which could skew costs unfavorably for some policy holders—insurers prefer to utilize the average, ensuring that premiums are fairly calculated.