What is a Valuation Mortality Table?

A valuation mortality table is a statistical chart used by insurance companies to help calculate the statutory reserve♚ and cash surrender values of life insurance policies.

A mortality table shows the death rate at any given age, based on the number of deaths that occur for every thousand individuals of that age. It provides statistics indicating the likelihood that a person of a given age will live a set number of years. This allows the insurance company to assess risks in individual policies and in their overall insured population. Insurance companies then use this information to set premiums for how much your life insurance costs.

Understanding Valuation Mortality Table

Life insurance companies use valuation mortality tables to determine their 澳洲幸运5官方开奖结果体彩网:legal reserve: the amount of liquid assets they are required by law to set aside for claims and benefits. Those statutory reserves are one factor that companies must consider as they design new products and set premiums. The 澳洲幸运5官方开奖结果体彩网:National꧙ Association of Insurance Com𒆙missioners (NAIC) sets minimum reserve requirements for insurance and related products and updates that guidance periodically.

A valuation mortality table typically has a safety margin integrated into the mortality rates to protect the insurers. Regulators often require the use of safety margins by carriers. Many carriers build in their own additional margins as well as those included in regulatory tables. Those margins are also applied differently for insurance policies and annuities.

Insurers use this safet✱y margin to build a buffer in case more people pass away than expected, leading to more claims having to be paid out. Without a reserve, an insurance company could go bankrupt from paying too many claims.

How Mortality Tables Work

Section 7520 of the 澳洲幸运5官方开奖结果体彩网:Internal Revenue Code requires the use of a set of actuarial tables for valuing annuities, life estates, remainders, and reversions for most purposes under Title 26 of the U.S. Code. These tables are . The 澳洲幸运5官方开奖结果体彩网:Commissioners Standard Ordinary (CSO) mortality table, prepared by the NAIC in conjunction with the 澳洲幸运5官方开奖结果体彩网:Society of Actuaries (SOA), is used to calculate life insurance ages across all 50 states and the District of Columbia.

Mortality tables are used by insurers to determine your 澳洲幸运5官方开奖结果体彩网:actuarial life expectancy. This statistic represents an average. It could be more or less than how long you as an individual actually live. Still, when spread acros💃s millions of people, the tables are remarkably accurate in predicting death rates. Insurers use this information to set insurance premiums and payouts.

The CSO/SOA tables were last updated in 2017, adding significantly more data that was available to construct the previous 2001 tables. The new tables' lower mortality rates reflect longer longevity among Americans during the new millennium. By 2020, all insurance companies were required to transition to the 2017 CSO table for all new products sold.

Example of Valuation Mortality Table

Say, for example, a male non-smoker wants to buy a $100,000 life insurance policy at age 40. The insurer estimates with mortality tables that this person will live, on average, to age 81. That mean🎶s the insurer can expect to receive 41 years of premium payments before the company has to pay the death benefit. The insur🗹er sets a premium based on this mortality prediction and the future payout.

This one person could end up dying tomorrow or living to 100. One individual result doesn't matter that much to an insurer. They sell tens of thousands of policies every year, so they can count on the large number of policies to track the mortality average on which it based the premiums.

This is a simple example of how actuaries look at longevity, but there's much more to it. Actuaries have algorithms that take into account many other factors, including whether you have high blood pressure or cholesterol, your family history, and other variables. Overall, the four major factors affecting longevity are your age, gender, use of tobacco products, and current health.

The longer your expected longevity, the less you'll pay for life insurance. The insurer predicts you will live longer and pay more total premiums versus someone with a shorter expected mortality.

The Bottom Line

Valuation mortality tables are tools used by insurance c🌜ompanies to help calculate various values used in designing and pricing insurance products. Mortality rates reflect the likelihood that a person will die at a given age bas𝐆ed on such factors as their current health. Even though mortality tables are mainly used by insurers, you can also use this information for your own financial, insurance, and retirement planning.