are mortality tables? They sound
pretty ominous but their trends have
helped to bring down
insurance rates over the past
decade so it's probably important to get
down to the bottom of what they are.
A quick look at the world of mortality
do life insurance carriers figure out
the rates? Let's say a 40 year old
wants $500K for 10 years. If the
carrier doesn't apply the correct rate
for this specific situation, they will
not be in the business long. If
they under-price the term life insurance
rate, claims can overwhelm their
received premium for the entire risk
pool and even undermine their reserves.
If they overprice this rate, they will
not be competitive on the market which
means they will have a smaller risk
pool. It's more important to have
an extra 100,000 people in the risk pool
that it is to make another $5-10 monthly
off a subscriber. Too small of a
risk pool can increase the risk that an
aberrant claims year can also adversely
affect the carrier's financial strength.
A life carrier's margin of error is very
slim on such a commodity product such as
insurance policies so they
really have to be pretty exact in their
how do the life carriers attempt this
calculation? The answer lies in
mortality tables. It's a fancy
word for the recorded history of death
according to various demographic
information such as age, gender, area,
and well....as many variables as they
can possible get their hands on.
Just having age and gender is not really
a complete picture. The rate of
death per 100,000 (which is typically
how these are view); age 40-45 is 161.6
for California in the year 2005
according to the
That means in 2005, 161 people dies in
that demographic group per 100,000.
Contrast this with Louisiana for the
same period, age, etc. That number
is 306.7! That's almost double.
Apparently, it's much more unhealthy to
live in Louisiana than in California.
These mortality tables are a foundation
for helping the carriers understand the
risk. They partially use available
date such as those provided by the
government and also internal data based
on their claims experience. If
they see their claims reflect a variance
from the the established mortality data,
they will adjust if it's more than just
a blip. So mortality tables plus
claims experience drive
till this point, it's been easy and no
carrier should have any real advantage
over another one when pricing their term
life plans. It gets trickier and
it's not all black and white.
There are shades of grey and this deals
with the subtleties of arise from a
given person's health class and history.
How much weight does elevated
cholesterol carry? What about
height and weight? How are the
mortality tables affected by a family
history of cancer or some other disease?
This is where things get a little
harder. The carriers can try to
multiply the base mortality rates for
one given disease but what about
multiple issues or attributes. At
some point, it might get so serious due
to a combination of health issues to
where the carrier will decline coverage
but there's a lot of room between
perfect health and outright declination.
carrier must somehow price these
variables into the rate and the
mortality tables only provide a
foundation to begin from. It's a
solid foundation and it's good to know
how the companies come up with the term
life rates you see in your quote.