Chapter 3 - Life Tables, Underwriting, and Introduction to Mortality Analysis

Question 1

How are mortality rates calculated?

Answer 1

Observing the number of deaths (dx) occurring in a population over a specified period (an interval, designated by “x”) and determining the number of individuals exposed to the risk of dying during that interval

Question 2

Exposure (ex)

Answer 2

exposure during an interval, or
= (persons exposed to risk of dying) (duration of interval exposure), or
= (lx) (interval duration)

Question 3

Lx

Answer 3

of individuals alive at the beginning of an interval (x) who are exposed to the risk of dying

Question 4

Dx

Answer 4

of deaths during an interval

Question 5

Qx

Answer 5

interval mortality rate, or
deaths/exposure, or
dx/Ex

Question 6

Why express mortality rates in monetary terms?

Answer 6

This allows the advantage of weighting mortality experience by policy size, thus providing a better indication of the financial impact of mortality

Question 7

Population life table

Answer 7

A life table tabulating death rates for large segments of the population without regard to individual health, socioeconomic status, or employment status

Question 8

What are population tables segmented by?

Answer 8

Sex, race, and residence (but not by any other factors)

Question 9

Period (current) life tables

Answer 9

A life table tabulating death rates for a particular period of time for individuals of different ages at the time mortality data was collected (different birth cohorts)

Question 10

Cohort (generation) life tables

Answer 10

Report the actual death rates for a group (cohort) of individuals born around the same time

Question 11

What is a limitation of all life tables, both cohort and period?

Answer 11

They report only historical death rates and do not predict future death rates

Question 12

Types of insured lives life tables

Answer 12

1. Select and ultimate (aka basic) tables
2. Annuity tables
3. Group life tables
4. Pension life tables
5. Standard and ordinary tables
6. Disabled life tables

Question 13

Basic tables

Answer 13

Report the mortality of individuals who purchased life insurance at standard or better rates (also separate by tobacco use)

Question 14

What is the select period in a basic table?

Answer 14

The period after policy during which the effect of underwriting continues to result in lower death rates compared to the entire pool of policyholders

Question 15

What are ultimate rates?

Answer 15

Death rates following the select period

Question 16

What type of table is the select portion of a basic table?

Answer 16

Cohort life table

Question 17

How are basic tables used by insurance companies?

Answer 17

To price products

Question 18

Annuity life table

Answer 18

Table tabulating the mortality rates of individuals who have purchased annuities (lowest mortality among insured lives)

Question 19

Social security (pension) life table

Answer 19

Table tabulating the mortality rates of individuals who were actively employed at some time

Question 20

Standard and ordinary life tables

Answer 20

Aggregate insured lives tables in which select and ultimate mortality rates are combined to arrive at aggregate death rates for each age, thus ignoring most the effect of selection resulting from underwriting (more conservative than select and ultimate tables)

Question 21

Disabled lives life table

Answer 21

Tabulating the mortality rates of persons no longer able to work due to a disability

Question 22

Excess death rate

Answer 22

the observed death rate (q) - expected death rate (q’)
q’ = baseline mortality assumption

Question 23

Relative mortality ratio

Answer 23

observed mortality (q)/expected mortality (q’)

Question 24

Types of substandard ratings

Answer 24

Table rating and flat extra

Question 25

When are table ratings more appropriate over flat extras?

Answer 25

If the excess morality increases with each duration that the policy remains in force

Question 26

When is a flat extra more appropriate than a table rating?

Answer 26

If the excess mortality risk is thought to remain constant

Question 27

Should you ever convert temp FEs into table ratings?

Answer 27

No

Question 28

Ultimate period

Answer 28

The period after the select period during which the effect of underwriting is assumed to no longer be effective in selecting standard or better risks from the entire pool of insured persons (generally 20 to 25 years)