Term Life Insurance Articles
How Life Insurance Companies Use Mortality Tables
2010-01-20
Mortality tables (also commonly known as actuarial tables) can be fascinating, if a bit morbid, to study. The tables show the probability of a person's death before their next birthday, as well as other information such as probable life expectancy after a certain age is reached, possibility of serious illness, and more. These tables are developed by the government and by private companies using a range of statistics, and they're a vital part of how term life insurance quotes are decided by insurance companies. Understanding how mortality tables are used can help many consumers control (or at least predict) what they may pay for life insurance premiums.
There are tremendous benefits to finding out the probability of an insured individual's death from an insurance company's point of view. Using probabilities, they're able to determine what an individual's term life insurance quotes should be in order to offer a competitive rate while still maintaining a profit. Mortality tables can be made for different age groups, but also for groups that use tobacco and alcohol or with family histories, further improving their ability to effectively "predict the future" over a wide sample of people. The bigger the sample group, the more accurate the mortality table, so many insurers pool information or use U.S. census information for the most accurate possible prediction of a life insurance policy holder's health and death. Statistics can change though and mortality tables have to be updated to reflect changes--they're not perfect by any means.
At first, this can seem like a remarkably cold, cynical approach, but it's very logical and necessary for the insurance companies. Without mortality tables, they're unable to estimate death with any accuracy, and this would lead to wildly varying term life insurance quotes from company to company. In order to stay profitable, high premiums would be necessary across the board. Like it or not, the mortality tables are an essential part of the life insurance industry, and it's highly likely that they'll always be very important.
For policy holders, a look at mortality tables can be a good way to make a rough determination of what life insurance premiums should cost. They also clearly explain why longer term insurance policies cost more than short term policies; the likelihood of the policy holder's death increases almost exponentially, especially during the later years of life. Before negotiating with a life insurance company, at least a cursory glance at the tables that they use can be very helpful and eye-opening, and may even provide some ideas for insured persons that are looking for lower life insurance rates.
