Chapter 3 Flashcards
When did life insurance begin?
The beginnings of life insurance can be traced to the 16th century and the earliest attempts at life insurance sponsored by friendly societies in the 17th and 18th centuries.
What were the three problems with friendly societies providing life insurance?
- Contributions were voluntary, and thus the death benefit could not be guaranteed.
- Unless new members were recruited into the society, the size of the group gradually diminished due to continued death and as a result, death benefits decreased.
- The number of claims increased each year because the group aged. Therefore the amount each beneficiary received further diminished and proportion to the increase in claims.
What is the assessment that friendly society’s adopted?
Protection was offered for a specified period (usually a year) and the necessary money to find this plan was raised by assessing each member an equal amount in advance.
Who is credited with the first series attempt at developing a population life table?
John Graunt
What year did John Graunt publish the Table of Survivors?
1662
What was the table of survivors based on?
John Graunt’s records of the weekly burials and deaths occurring in London.
Name the four individuals who authored the Northampton tables of 1771 through 1783.
Sir Edmond Halley
Abraham De Moivre
James Dodson
Richard Price
All live tables are constructed using similar principles and fundamentally the same information. What is this information?
Annual mortality rates tabulated by age, sex, and other factors
How are mortality rates calculated for different ages?
By observing the number of deaths occurring in the population of earth specified. And determining the number of individuals exposed to the risk of dying during that interval.
How is exposure expressed?
As the product of the number of individuals who are alive at the beginning of an interval who are exposed to the risk of dying and the duration over which that exposure takes place usually in years. Thus exposure is almost always expressed as person years.
How is the interval mortality rate calculated?
By dividing the number of deaths occurring during an interval by the corresponding exposure. Since most life tables use one year intervals, the mortality rates are typically annual mortality rates.
What advantage does expressing mortality rates and monetary terms allow?
Weighting mortality experience by policy size, thus providing a better indication of the financial impact of mortality.
Why will a claim occurring in the future have less financial impact on a company than one occurring shortly after policy issue?
Because a portion of the premiums is invested in held in reserve, and because inflation or roads to the future value of fixed death benefits.
What is a secondary life insurance market (viatical or life settlement company)?
They purchased life insurance policies from policyholder for some somewhat greater than the policies accumulated cash values. When the insured dies the viatical or life settlement company receives the death benefits.
What is a population life table?
They are based on death rates calculated for large segments of the population without regard to individual health, socioeconomic, or employment status. They are often segmented by our sex race and residence.
What do population life tables represent?
The average mortality across large segments of the general population.
Most like tables are. (I.e. current) life tables.
How many years is data typically collected for these tables?
1 to 3 years
What is a cohort (generation) life table?
They report the actual death rates for a group or cohort of individuals born around the same time. These tables accurately report the historical death rates for a broken heart up to the time the table was created.
What is a limitation of all life tables, both cohort and period?
They report only historical death rates and do not predict future death rates.
Mathematical models incorporating various assumptions are required to project future mortality rates.
There are also a variety of insured lives of life tables, including these six
- Select and ultimate (also known as basic) tables.
- Annuity tables.
- Group life tables
- Pension life tables.
- Standard and ordinary tables (commissioner standard ordinary or CSO tables).
- Disabled life tables.
What do basic tables report?
The mortality of individuals who purchased life insurance at standard or better rates.
For the most part, death rates reported in basic tables represent what?
A select group of individuals having a greater proportion of persons from higher socioeconomic groups and a lower proportion of disabled persons, and those with ill health, when compared to the general population.
What is the select period in basic table?
The period after policy issue during which the effective underwriting continues to result in lower death rates compared to the entire pool policyholders.
What are basic tables used for?
They are used by insurance companies to price life insurance products. To price their products, competitively companies often modify these tables by applying factors that reduce projected mortality rates to levels thought to be attractive to potential new policy holders.
What are individuality tables?
They typically have the lowest mortality rates of any insured lives, mortality tables. They represent the mortality expected for holders of an annuity products that because of their features are known to attract healthy persons having the greatest longevity.
What are group life tables?
They are aggregate life tables because little if any individual underwriting is done for group insurance. Group life tables typically have mortality rates on par with or slightly higher than individual selecting ultimate tables.
What are Social Security or pension life tables?
They typically have higher mortality rates that are close to, but someone less than population rates because selection is limited to the requirement that person is eligible for Social Security, or pensions, must have been actively employed at sometime.
What are standard and ordinary tables?
They are used by evaluation, actuaries to set policy reserves and determine cash values.
Are standard and ordinary tables more or less conservative?
They tend to be more conservative due to the addition of loadings to the underlying basic tables. The level of mortality reflected in these tables is on par with that of Social Security or pension life tables.
What are disabled lives life tables?
They reflect mortality rates of persons no longer able to work because of a disability. Accordingly, mortality rates in these tables are somewhat higher than general population mortality rates.
