Mortality Table in Life Insurance

Definition of Mortality Table

Mortality table is such data which records the past mortality and is put in such form as can be used in estimating the course of future data.

Thus the mortality table is to predict future mortality. It is also described as the picture of a generation of individuals passing through time.

A large number of persons are selected and served for death and survival rate till all of them is dead.

Features

(i) Observation of Generation

In preparation of mortality table persons of a generation (i.e., persons of a single age) are selected and they are observed up to death. No new entries or withdrawals are assumed at any stage of the study.

(ii) Start from a point

The mortality table starts from a point, which depends on the requirement of the insurer, and will continue up to the point all of them have died.

(iii) Yearly Estimation

The mortality table records the yearly death or survival rate. Each and every year is considered for calculating the rates.

(iv) Mortality and Survival Rates

The mortality and survival rates of the generation who are selected at a particular age are considered each and every year.

Any table giving mortality rates only is not mortality table unless mortality rate of a generation is calculated every year.

Each year’s number, living in the previous year’s number of living minus pervious years’ number dying and, therefore, as persons go on dying year after year the number of living goes on shrinking till it is reduced to zero and mortality table ends there.

Construction of Mortality Table

The best method of construction of mortality table will be to select a large number of persons at attained age.

Attained age means age nearer to birth date. For example, persons of 19 years 6 months to 20 years 5 months and 29 days will be treated as the age of 20 years.

The attained age will be selected at which policy is to begin.

The selected persons of the attained age will be observed and the number of deaths will be recorded during a year till the persons selected are dead.

Theoretically speaking this type of mortality table will be the actual mortality table. The number of death in a year is deducted from the number of living at the beginning of year.

Criticism

(i) Preparation of such table is difficult because a large number of persons or an attained age is impracticable to get.

(ii) Constant, watch on them is not possible.

(iii) It will require a long-period to construct the table and for which a permanent officer, say for about 100 years, is required.

(iv) A lot of money and time will be wasted to record number of deaths every time.

(v) However, if such impossibilities are dared to do the mortality table will be quite obsolete because it has been constructed at least within 100 years during, which a lot of changes might have occurred.

Mortality Table in Life Insurance

Construction of Death Rate on Yearly Basis

Death Rate Calculation

To avoid the above difficulties, death rate is calculated on yearly basis.

The death rate is calculated for every age. Separate sample is taken for each age. The number of living in each age is observed and number of death during the age is recorded.

By dividing number of death by number of living in each age, the death rate for the age is calculated.

A year is selected because a year constitute various types of weather, and therefore, low, high and normal mortalities are averaged in the year.

Secondly, rates of premium in insurance are quoted on an yearly basis and so the cost depending on mortality showed also be based on yearly basis.

Sources of Mortality Information

For construction of mortality table, number of living of the beginning of each age and the number of deaths during the age are required.

The mortality table should be constructed to represent the past experience as accurately as possible.

So the figures of mortality construction should be as accurate as either from

(i) population statistics, and
(ii) records of life insurers.

(i) Popular Statistics

The insurer gets number of living at each age from census records and the number of deaths from municipal and other death records.

The population statistics will reveal how many persons have died at what age. So, with the radix of total number of persons at the beginning, it can be calculated how many died in a particular age.

The calculation of mortality table on this basis is not every easy and correct.

Criticism

The population statistics is not very much useful to insurers. It was applied only when there was no insurance experience in this field.

(i) The accuracy of population statistics is doubtful in absence of age-proof. There has been overestimation or under-estimation in several cases. Sometimes, members of a certain section of society are unaware of ages.

(ii) It has been also noticed that some deaths are unrecorded. It is difficult to know exactly how many deaths are unrecorded and similarly, it is also difficult to know exactly how many deaths occurred at a particular age.

(iii) Census figures are available only after 10 years and therefore, it would not be very recent figure. A particular census figure may be biased with the abnormality of the year.

(iv) Interpolation and extrapolation are involved and correct figures are generally not known.

(v) The population statistics will give statistics of all types of persons without any separation while the insurer requires mortality of only insurable lives. Mortality for standard and substandard lives are requires separately.

2. Records of Insurers

The records of insurer give a correct figure because the death rates can be correctly recorded. No death will go unrecorded, correct number of persons living and dead for each age can be known.

Collection of figures is done from the records of as many insurers as possible in large numbers but is not more than 10 years covering, favourable and unfavourable years.

Generally 10-year period may be quite sufficient. The abnormal years are excluded from the sample.

Separate mortality tables may be prepared for standard lives, sub-standard lives, female and male lives.

Sub-classification according to sex, marital status, occupation, geographical area, class may be made and tables are constructed separately.

The counting of persons is done very cautiously, withdraw and lapsation are excluded.

Persons included for calculation caused exposed to risk. If the calculation starts at the withdrawal from this number is excluded.

Yearwise aggregation of number of deaths and number of living persons is done from the information of all insurers.

Mortality rate at every age will be counted by dividing the number of expired lives by number of exposed lives.