Page 17 - Life Insurance Today March 2016
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comparison is possible. On comparing rates with earlier
prepared tables it is found that the mortality rates have
been invariably improved over the period consistently up
to age 60 years.
(a) A survives but B dies; and Moreover, the 1970-73 investigation & preparation of the
Mortality Table has revealed that the lives covered under
(b) B survives but A dies. Non-medical (Special) forms a class which experiences
mortality lighter than the lives covered under Non-medical
Probability for (a) = (10 P35) (1-10 P42) = (.9724) X (.0550) (General) and lives covered after medical examination, the
= .0535. 1975-79 investigation confirmed this inference.
Probability for (b) = (1- 10 P35) (10 P42) = (1-.9724) (.9450) Every insurer wants to examine how the mortality basis
= .0261 assumed in its premium calculation or its valuation of
policy liabilities compares with the actual experience. The
Therefore, required probability = .0535 + .0261 = .0796. trend of mortality of assured lives is towards improvement.
If the improvement is substantial, the valuation basis is
It will be observed that (1), (2) and (3) above are mutually suitably modified at the time of next valuation.
exclusive and exhaustive events. So, sum of the
probabilities for events (1), (2) and (3) is 1 and that is also Thus this effect of change gets reflected in quantum of
proved numerically. bonus declared in respect of policies issued under
assurance plans which participate in profits. However, the
Solution: - (4) The event "at least one survives 10 years" persons insured under non-profit plans do not get the
is complementary to "neither of them survives 10 years" benefit of improvement in mortality. Frequent revision of
i.e. both of them die within 10 years. premium rates poses lot of administrative problems.
Therefore, when the premium rates become completely
So the required probability in this case = 1- (1- 10 P35) (1- out of date,not only on mortality count but also for
10 P42) = 1 - (.0276) (.0550) = 1- .0015 = .9985. interest rate and expense loading - a revision becomes
inevitable for the insurer.
G. Conclusion:
So the theorems & concept of Probability must be
From all the above issues and discussion it is clear now thoroughly understood by each of the insurers to examine
that through these concepts of probability two (2) the current experience. It may not be necessary to carry
mortality tables are formed using the various concepts & out a full scale mortality investigation as discussed in this
theorems of probability and they are: article, as it involves lot of labour and time due to which
(1) LIC (1970-73) Ultimate Table; and (2) HM Table the cost would be prohibitive. What is required is basically
(Makeham Graduation). to compare the current mortality with the latest available
mortality basis used for premium calculation or valuation,
Using those tables the insurers may decide about the as the insurer may deem fit, according to their
exposure of risk, Actual Deaths (A), Expected Deaths (E), requirement.
Mortality Experience of Male & Female lives, selection of
premium rates at various ages, graduation of selected rates References:
& updating of the same in relation to actual exposure - all
are possible. From these mortality tables a definite Different contemporary discussions & information as
collected & collated from various text books and referred
from various web-based on-line materials.
"It is better to be hated for what you are than to be loved for what you are not."
Life Insurance Today March 2016 17
