Mortality tables are one of the main tools for the life insurance industry. Mortality tables are mathematically complex grids of numbers that show the probability of mortality, or death, for members of a certain population within a defined period of time. Mortality tables are crucial to the life insurance industry and also are used by the U.S. Social Security Administration.
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Mortality tables are based on characteristics such as gender and age. A mortality table gives probabilities based in deaths per thousands, or the number of people per 1,000 living who are expected to die in a given year. Mortality tables are used to help determine premium amounts for life insurance companies, making sure the insurance company will receive enough in premiums and investments to cover the face amounts of the policies it sells.
A mortality table typically covers the time frame from birth through 100 years of age, in one-year increments. You can use a mortality table to look up the probability of death for someone of any age. As you age, the probability of your death increases.
To use mortality tables, you have to look at the age of an individual, then see what the table says about the chances that she will die when compared with the rest of the group. In the case of a newborn male, there is less than one half of one 10,000th of a percent that he will die when compared with the rest of the group. That would give him a life expectancy of around 75. But a 119-year-old man has, according to the 2005 mortality table used by the Social Security Administration, a more than 90 percent chance of dying when compared with the rest of the group. That translates into a life expectancy of just over six months.
Mortality tables are mathematically sound and accurate for group populations, but slightly less so for any one individual. Obviously, mortality probability is a factor of more than just age and gender, and as many variables as possible must be taken into consideration in the insurance process. Making projections as to the life or death of any specific individual is a complex actuarial process.
All mathematical tables have a bias. When buying life insurance, or if there is an unexpected change in your rates, it is a good idea to inquire about the mortality tables and information used to calculate your premiums. Discuss any risk factors with your agent to make sure the correct mortality table has been used to calculate your premium or rate your policy.