What is an Ultimate Mortality Table?

An ultimate mortality table shows the proportion of life insurance buyers anticipated to survive to a certain age. The table starts at age 0, corresponding to 100% of the population, and goes up to age 120. Instead of the whole American population, the data is usually based on a population of life insurance policyholders from a particular insurance company or group of companies.

How to Interpret the Ultimate Mortality Table

Mortality tables are numerical grids that, depending on a wide range of factors, indicate the likelihood of mortality for members of a specific population within a certain time frame.

An ultimate mortality table differs from other tables primarily because newly underwritten insurance is not included. Typically, the study excludes the first years of life insurance data to mitigate the selection impacts. The reasoning is that, compared to the general population, those who have recently obtained life insurance are likely to have passed a medical examination, be statistically healthier, and be less likely to be near death.

1919

That was the year Raymond Pearl popularized mortality tables across the globe to support ecological research.

Survivorship data is the information that underpins final mortality figures and includes a wide range of risk variables. Mortality tables may include survival and death rates according to weight, ethnicity, geography, and rates of death and survival for different age groups and sexes. There is also some separate data for smokers and non-smokers.

Furthermore, some may offer an aggregate mortality table that presents death-rate information for all research participants who have acquired life insurance without sorting according to age or purchase date. An aggregate table’s data is derived from the total statistics of many, if not numerous, separate mortality tables.

The Use of an Ultimate Mortality Table

Insurance firms price their products and decide whether to provide coverage to an applicant based on information from ultimate mortality statistics.

The profitability of an insurance firm depends on analyzing the likelihood that an applicant will pass away within the period for which they seek coverage. Life insurance ensures a lump-sum payment to designated beneficiaries upon the policyholder’s death.

Companies’ capacity to correctly analyze the data behind final mortality tables determines the profitability of insurance products.

To a lesser extent, investment management firms may also use ultimate mortality tables to assist their clients in estimating how long they will live and how much money they may need for retirement.

Particular Points to Remember

The survey’s overall data breadth determines the eventual mortality tables’ correctness, just as for other statistical data. Stated differently, the final mortality table provided by an insurance company could not be as accurate as one created by a group that can aggregate data sets from many insurers.

For example, the Society of Actuaries (SOA) generates an ultimate mortality table based on a large amount of yearly data. Along with calculating death rates for men and women in the U.S., it also provides a combined table that shows the final mortality rate for the country’s whole population.

Conclusion

• An ultimate mortality table shows the proportion of life insurance buyers anticipated to survive at a certain age.
• Typically, the data is based on policyholders from a specific insurance company or group of companies rather than the total U.S. population.
• Since the owners of these policies most likely had to pass a medical test, data from freshly underwritten policies is not included in ultimate mortality figures.
• Insurance firms use ultimate mortality figures to set their product prices and make coverage decisions for applicants.