What Is a Life Insurance Actuarial Table?
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What is an actuarial table in life insurance?
A life insurance actuarial table is a statistical tool insurers use to calculate someone’s life expectancy based on a range of factors, including age and gender. Also known as “mortality tables,” the information within these tables helps insurers set policy premiums and manage their financial bottom lines.
How do actuarial tables work?
When you buy life insurance, the insurer needs to calculate the amount of risk it’s taking on. That’s where actuarial tables for life insurance come in: They estimate the average life expectancy for each age group. With this information, insurers know how much money they need to set aside to pay out life insurance claims in a given year.
Your risk of dying, based on mortality table calculations, is also a key factor in determining your life insurance premiums. The longer your life expectancy, the better your rates are likely to be.
» MORE: Average life insurance rates
There are a few types of actuarial tables. Most insurers use period life tables, which lay out the number of additional years someone is expected to live based on their current age and gender. For example, a 35-year-old woman could expect to live an additional 46.2 years in 2020, according to the American Council of Life Insurers. But a 100-year-old man had a life expectancy of 1.8 years.
Mortality tables have many uses beyond life insurance. For example, the IRS uses actuarial tables to determine the amount of required distributions for 401(k)s and other retirement accounts. The Social Security Administration also uses period life tables to make projections about whether it has enough money to pay future benefits.
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