What are Mortality Tables?

Posted in Life Insurance

January 15th, 2009

In order to price insurance products and ensure a sound financial future for their company by creating adequate reserves, insurance providers must have a good idea of the probability that they will have to pay out in the event that a future insured event occurs. To do this, they develop projections of the likelihood of future events, such as death or disability, by creating mathematical models of the causes of these events, studying how often these events have occurred in the general population, and projecting from that how likely they are to occur in the future.

These projections are then tabulated into actuarial tools called mortality tables, also known as life tables, probability tables or actuarial tables. Using sophisticated dynamic modeling techniques, these tables aggregate statistics and create projections based on certain criteria, such as:

the likelihood of surviving any particular year of age
remaining life expectancy at different ages
longevity characteristics of a given cohort (by age, gender, etc)

Using these tables, insurance companies develop expectations about how the drivers of these past events are likely to change over time (for example, whether increases in life expectancy experienced by past generations are likely to continue) and, accordingly, they use these tables to determine the likelihood that an insured client will generate a claim.

Mortality expectancies are usually based on the age or other relevant characteristics of the population. Men and women generally have separate mortality tables, due to the differences in their life expectancies. Other characteristics, such as whether a person smokes or engages in a high risk occupation, are also factored into their own mortality tables.

Using these tools, insurance professionals called actuaries develop a whole picture of how much the company will need to remain solvent, and how much needs to be charged in premiums to cover claims and other expenses. This premium must create profit, while remaining competitive with other insurance companies.