Mortality Table, Types of MT, Aggregate Table, Select Table, Ultimate Table, Methods of Premium Calculation

1. UNIT 2 – MORTALITY
TABLE
BY
DESI PRIYA V
ASSISTANT PROFESSOR
ETHIRAJ COLLEGE FOR WOMEN

2. MORTALITY TABLE
• Instrument
• Mortality rates at different age groups
• Premium rates are calculated
• Life expectancy, the probability of living or dying

3. DEFINITION
• According to Mayerson, “Mortality table is a statistical representation
showing at each age the rate of mortality”.
• Federation of Insurance Institutes of India defines mortality table as “a table
giving probabilities of survival and death at successive ages”.

4. CHARACTERISTICS OF MT
• Statistical table showing the probability of dying or living on a given age
• Exhibits the average life of a person
• Cannot predict the death of a particular person

5. NEEDS AND IMPORTANCE OF MT
• To determine the premium rates
• To develop attractive insurance plans
• To estimate the cost of acquiring the services of insurance
• To facilitate the insurer to estimate the income from insurance business to
ascertain the number of death claims and the time of payment of claims
• To efficiently manage the income, losses, risks and the probable claims.

6. METHODS OF PREMIUM CALCULATION
• VALUE OF SERVICE
• COST OF SERVICE
• COST OF CLAIMS

7. VALUE OF SERVICE
• Utility of insurance to each proposer
• Value or utility differs, premium also differs
• Value of service principle cannot be used
• Poor people and heads of large family – value is higher compared
• Higher premium cannot be charged

8. COST OF SERVICE
• Cost to the insurer
• Demand side does not play important role
• Cost of service = all expenses of the business + small profit margin
• Insurance business runs on “no profit no loss” basis
• Another cost is cost of administration
• Cost of administration = all expenses of management + contingency
expenses

9. CONT…
• Cost of administration is of 2 types: (i) fixed cost and (ii) recurring cost
• The method of distribution of expense is called loading
• Premium fixed on the basis of loading called as gross premium or office
premium

10. COST OF CLAIMS
• Death of the life assured
• Maturity of the policy
• In life insurance, Payment of claim depends upon the death
• Forecasting of death is important
• The forecasting of death can be done (i) experience of medical science and
(ii) on the experience of past records

11. CONTI…
• Death of one life cannot be forecasted but the expectation of a number of
death from a group of the same age can be forecasted
• On the basis of (i) Theory of Probability and (ii) Law of Large Numbers

12. CONSTRUCTION OF MT
• Select a large number of persons at the attained age
• For example, a person of 19 years and 6 months to 20 years 5 months and
29 days = 20 years
Age Number of
Living
Number of
Death
Death Rate Survivors Rate
20 10,00,000 2000 0.002 0.998
21 9,98,000 3000 0.003 0.997
22 9,95,000 4000 0.004 0.996

13. SOURCES OF MORTALITY
INFORMATION
• For construction of MT, number of living at the beginning of each age and
number deaths during the age is required
• Represent past experience as accurately as possible
• The following are the sources:
Population Statistics
Records of Life Insurers and
Miscellaneous sources

14. POPULATION STATISTICS
• Number of living – census record
• Number death – municipal and other death records
• Reveals how many people have died at what age
• Calculation of MT on this basis is not very easy and correct
CRITICISM
• Overestimation and underestimation in several cases. Unawareness of ages
• Some deaths are unrecorded

15. CONTI….
• Census figures available only after 10 years
• Interpolation and extrapolation are involved
• PS gives statistics of all types of persons
• Mortality for standard and sub-standard lives are requires separately.

16. RECORDS OF INSURERS
• Gives correct figures
• 10 years data (efficient)
• Separate MT for Standard lives, Sub- Standard lives, female and male lives
• Year wise aggregation is done
• Mortality Table = Number of Expired lives / Number of Exposed lives

17. MISCELLANEOUS SOURCES
• Other resources such as
Patient’s register maintained by hospitals
Statistics relating to health and deaths
Lives statistics of Hindu male members
• Reliable and trustable

18. PROCESS OF CONSTRUCTION OF MT
• Identification of objectives
• Selection of statistical method
• Sources of information
• Determination period of records
• Methods of construction of Mortality Tables
• Analysis of the persons included in the risks
• Determination of mortality rate

19. TYPES OF MT
1. Aggregate Table
2. Select Table
3. Ultimate Table

20. AGGREGATE TABLE
• Prepared on the basis of claim experience
• Assured both new and old of same age grouped together
• Mix of both ‘Select lives’ and ‘Ultimate lives’
• Mix or General Mortality Table
• For example:
Insured = 10,000 at the age of 20 years, 4 years ago.
Now their age 24
Insured = 6000 at the age of 24 years, no
Total or aggregate of insured at the age of 24 = 16,000

21. CONTI….
• No selection is required or non-medical policies
• Group insurance

22. SELECT TABLE
• Depends upon both age and duration of insurance – mortality rate
• Creator – Dr.Sprag, on the basis of 20 male members of 20 companies
• Differences can be found in the mortality rate according to the period
• Mortality rate and premium rate will be lower for new insured of the same
age and vice versa
• Determine paid up value of the policy

23. CONTI….
• Short period of time
• Selecting only insurable lives
• Group selected first has lighter mortality than another of the age at present
Age Years of Insurance 6 years
& over
Age
attained
1 2 3 4 5
20 2.73 3.9 3.80 3.96 4.13 4.31 25
21 2.78 3.66 3.86 4.01 4.18 4.35 26
22 2.83 3.72 3.61 4.07 4.21 4.38 27
23 2.86 3.76 3.06 4.08 4.24 4.41 28

24. CONTI…
• Accurate data about deaths are available

25. ULTIMATE MORTALITY TABLE
Age 6 and over Age attained
20 4.31 25
21 4.35 26
22 4.38 27
23 4.41 28

26. CONTI….
• Only ultimate rates are tabulated
• Both select and ultimate MT are shown together
• Used for valuation purpose
• Maximum possible rate of death

27. LIMITATIONS
• Preparation of such table is difficult
• Constant watch not possible
• Long period to construct the table
• Waste of time and money
• MT becomes obselete