Mortality rate

There is a good chance that you will have heard of the term “mortality rate”. I’m not an insurance person but this much I can tell you: “mortality rate” is simply a measurement of the frequency of death for a given group of people at a particular period of time.

Complicated? It needn’t be. The mortality rate provides an historical measure for each age group and gender which, when considered as a whole, becomes the mortality table. Insurance companies live by it. It’s part of their business to know about the mortality rate because it is a factor that an insurance firm takes into account when setting the premiums of an insurance product.

Generally, the lower the mortality rate, the lower will be the premium. Medical advances and better nutrition have generally enabled us to live longer. Since fewer deaths are now expected per age group, which means lower death payouts from insurance companies, we should be enjoying lower premiums. For example, I’ve been hearing that new policyholders of term life insurance are enjoying lower premiums partly because the mortality rate has dropped through the years.

Statistically, men have a higher mortality rate than women because the latter have longer lives. However, women have a higher morbidity rate as they fall ill more often. (The morbidity rate is an historical measure of the number of people falling ill for a particular group in a given time period.)

Now, I did mention that the mortality rate is a factor used by insurance companies to work out the premiums of an insurance product. I’d just like to add that there are other factors such as the rates of returns on investments, interest rates and inflation.

An insurance company will need to ensure that the premiums it charges are sufficient to cover the claims and the business costs, but not so high that the products are unattractively priced beyond a potential customer’s pocket.

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