What is a Mortality Factor?
A mortality factor is an estimate of the number of people who will die each year at a specific age, on average. Insurance actuaries use mortality factors to determine premiums for life insurance applicants.
Life insurance and longevity
The length of time you have left to live is one of the biggest factors that life insurance professionals consider when issuing you a policy and determining how much to charge for it.
The longer you live, the longer you’ll be able to pay the premiums required to keep your life insurance policy in place. This allows the insurer to offset the death benefit they’ll need to pay to your beneficiaries when you pass away. In short, the longer you live, the lower their out-of-pocket cost, so to speak, and, consequently, their risk.
As a result, the longer the insurer expects you to live, the more they’ll lower the premiums for your life insurance policy. They aim to balance bringing in enough money while you’re alive with the reality that if they set premiums too high, most people won’t buy life insurance.
That leaves insurance actuaries with the task of estimating how long individuals are likely to live with as much accuracy as possible. To do that, they turn to tools like the mortality factor, which essentially expresses how likely you are to die at a certain age. The mortality factor might get influenced by certain circumstances that pertain to you, like whether or not you smoke.
How mortality factors get used
Mortality factors influence sophisticated tools that actuaries use, like mortality tables. With these charts, they can quickly assess how likely you are to pass away at a certain age. This enables them to set your premiums at a rate that mitigates risk for them while still keeping them as affordable as possible for you. They prioritize that affordability to incentivize you to purchase the policy.