An ultimate mortality table lists the percentage of life insurance purchasers expected to still be alive at each given age, beginning with age 0, which represents 100% of the population, up to age 120. Typically, the data is based on a population of life insurance policyholders from either a particular insurance company or group of them, rather than the entire national population.
Key Takeaways
- An ultimate mortality table lists the percentage of life insurance purchasers expected to still be alive at each given age.
- The data is typically gathered from the policyholders of specific insurance companies or groups rather than the entire population.
- Ultimate mortality tables exclude data from recently underwritten policies as these have a higher likelihood of passing medical exams.
- Insurance companies use ultimate mortality tables to price their products and assess applicant coverage viability.
Understanding an Ultimate Mortality Table
Mortality tables are grids displaying numbers representing the probability of death for members of a specific population within a defined period. These tables factor in a wide array of variables.
What distinguishes an ultimate mortality table from other mortality tables is its exclusion of recently underwritten policies. Initial years of obtained life insurance data are often omitted to disregard selection effects. Individuals who recently received life insurance likely passed medical exams and are presumed healthier than the general population.
Historical Insight
In 1921, Raymond Pearl introduced the concept of mortality tables to advance ecological studies. This innovation laid the groundwork for the use of mortality data in various fields including insurance.
The information underlying ultimate mortality tables, termed survivorship data, comprises multiple risk factors. Apart from mortality rates based on age and gender, these tables can include statistics related to weight, ethnicity, and region. Some tables further differentiate between smokers and non-smokers.
Additionally, structures such as an aggregate mortality table present death-rate data across the total study population insured, without categorizing based on age or purchase timing. Aggregate data is derived from the combined statistics of numerous individual mortality tables.
How an Ultimate Mortality Table Is Used
Insurance companies leverage data from ultimate mortality tables to determine product pricing and decide whether to offer coverage to an applicant.
Life insurance guarantees a lump sum payment to designated beneficiaries upon the policyholder’s demise. Thus, analyzing the probability of an applicant’s life expectancy during the coverage period is crucial to maintain the profitability of an insurance provider.
Important Point
The profitability of life insurance products significantly depends on the precise analysis of data within ultimate mortality tables.
Investment management firms also sometimes utilize ultimate mortality tables to assist clients in determining life expectancy and retirement savings needs.
Special Considerations
As is true for other types of statistical data, the precision of ultimate mortality tables depends substantially on the data’s comprehensiveness. Therefore, a single insurance company’s ultimate mortality table might not be as accurate as one compiled by an organization drawing from multiple insurers’ datasets.
For example, the Society of Actuaries (SOA) often produces an ultimate mortality table each year based on a robust dataset. These tables calculate mortality rates for men, women, and also provide a blended table for the entire population.
Related Terms: mortality tables, life expectancy, insurance underwriting, risk assessment, aggregate mortality table.
References
- David H. LaFever. Encyclopedia of Ecology, Volume 3: Age-Class Models, Pages 215-218. Academic Press, 2019.
- Society of Actuaries. “Mortality and Other Rate Tables”.
