MORTALITY TABLE A Mortality Table is an instrument exhibiting the mortality rate

s at different age groups. Premium rates are calculated on the basis of mortalit
y tables. It indicates the life expectability, the probability of living or deat
h. According to Mayerson, "Mortality table is a statistical representation showi
ng at each age the rate of mortality." It is an instrument which measures the pr
obability of living or dying. Federation of Insurance Institute of India defines
mortality table as a table giving probabilities of survival and death at successiv
e ages." CHARACTERISTICS The important characteristics of a mortality table are:
(1) It is a statistical table which shows the probability of death or living on
a given age. (2) This table exhibits the average life of a person. (3) It canno
t predict the death of a particular person. (4) It cannot give 100 per cent accu
rate information. It helps only to determine an approximate premium rate. NEED A
ND IMPORTANCE OF MORTALITY TABLE The significance of mortality table can be stat
ed as under the following points: (1) It is a scientific instrument to determine
the premium rate from different age groups of insured. (2) It presents the prob
able deaths among a similar age-group of insured; on the basis of which attracti
ve insurance plans can be developed for different age groups, by the insurer. (3
) Helps to estimate the costs of acquiring the services of insurance. (4) It hel
ps the insurer to estimate the income from insurance business. (5) Helps to asce
rtain the number of death claims and the time of payment of claims. (6) Helps th
e insurance companies for efficient management of income, losses, risks and the
probable claims. (7) Mortality table has been an important source of huge-scale
operation of insurance business. The risks are measured or evaluated for fixatio
n of premium to be charged by the insurer. There are two methods of calculation
of Premium: (i) Value of Service, (ii) Cost of Service. (i) Value of Service. Th
e value of service determines the rate of premium according to the utility of in
surance to each proposer. Since, the value or utility to each person differs; th
e premium rate also varies. The value of service principle cannot be used in ins
urance because its utility to each individual cannot be determined. Moreover; th
e value is higher to the proper section of society and to the head of large fami
ly; but they cannot be charged higher premium than the premium charged by richer
class of the society. Moreover, the higher premium will not attract business fr
om them. The value of service cannot be used due to its impracticability. (ii) C
ost of Service. In fact, the premium should be charged according to cost to the
insurer. In insurance demand side does not play important role. Therefore, it is
called that the insurer is not
bought, but it is sold. So, the insurer must fix the cost or premium to be charg
ed on a particular risk or policy. Insurance business may carry on only when the
cost of insurance is met. The cost includes all expenses of the business plus s
mall profit margin. Above the profit margin, insurer is not expected to gain. Th
is is the reason that insurance business is expected to run on 'no loss, no gain
', basis. The most important cost to insurer is cost of claim. Therefore, the in
surer must charge at least so much of premium that can be used to pay the full a
mount of claim. Technically, the premium charged to meet the amount of claim, is
called net premium. Another cost to insurer is cost of administration. It inclu
des all expenses of management and other amount for provisions of contingency. T
he cost of administration may be of two types, (i) fixed cost, and (ii) recurrin
g cost. The fixed cost is spread over the policy-life but the recurring expenses
do not involve much problem of allocation. The method of distribution of the ex
penses is called loading which, is discussed in detail in a separate chapter. Wi
th the help of loading net premium is enhanced to charge a fixed amount regularl
y from the policy-holders, which is called gross premium or office premium. So,
the first problem before the insurer is to calculate the cost of claims. Cost of
Claims The claims may arise at the death of the life assured or at the maturity
of the policy. In annuity contract the payment shall continue to death therefor
e, the expectation of survival will be the basis of the cost. In life insurance,
in most cases, payment of claims depends upon the death. The death is certain b
ut when it will take place is not certain. Therefore, the main problem before th
e insurer is to decide when the death will take place. The forecasting of death
is very important factor to decide the period and amount of claim. If the period
and amount of claims have been decided, the premium can be easily calculated. T
he forecasting of death can be done on (i) experience of medical science, and (i
i) On the experience of past records. If the medical science of insurance has be
en sufficiently advanced and its knowledge could be perfectly used, the same, th
en, might have projected the time of death of each applicant. The medical scienc
e can be useful to modify the past experience according to the present mortality
prospects. The insurer has to rely upon the past experience which is treated as
a basis for germinating future mortality. Evidently, the death of one life can
not be forecasted; but the expectation of a number of deaths from a group of per
sons of the same age can be forecasted on the basis of (i) Theory of Probability
and (ii) Law of Large Numbers. CONSTRUCTION OF MORTALITY TABLE The best method
of construction of mortality table will be to select a large number of persons a
t attained age. Attained age means age nearer to birth date. For example, person
s of 19 years 6 months to 20 years 5 months and 29 days will be treated as the a
ge of 20 years. The attained age will be selected at which policy is to begin. T
he selected persons of the attained age will be observed and the number of death
s will be recorded during a year till the persons selected are dead. Theoretical
ly speaking this type of mortality table will be the actual mortality table. The
number of death in a year is deducted from the number of living at the beginnin
g of the year to get the number of living in the beginning of the next year. Cri
ticism (i) Preparation of such table is difficult because a large number of pers
ons or an attained age is impracticable to get. (ii) Constant watch on them is n
ot possible. (iii) It will require a long-period to construct the table and for
which a permanent officer, say for about 100 years, is required.
(iv) A lot of money and time will be wasted to record number of deaths every tim
e. (v) However, if such impossibilities are dared to do the mortality table will
be quite obsolete because it had been constructed at least within 100 years dur
ing, which a lot of changes might have occurred. Table-1 Age 20 21 22 Number of
Living 10,00,000 9,98,000 9,95,000 Number of Death 2,000 3,000 4,000 Death Rate
0.002 0.003 0.004 Survivors Rate 0.998 0.997 0.996
CONSTRUCTION OF DEATH RATE ON YEARLY BASIS To avoid the above difficulties, deat
h rate is calculated on yearly basis. The death rate is calculated for every age
. Separate sample is taken for each age. The number of living in each age is obs
erved and number of death during the age is recorded. By dividing number of deat
hs by number of living in each age, the death rate for the age is calculated. A
year is selected because a year constitutes various types of weather and, theref
ore, low, high and normal mortalities are averaged in the year. Secondly, rates
of premium in insurance are quoted on a yearly basis and so the cost depending o
n mortality showed also be based on yearly basis. SOURCES OF MORTALITY INFORMATI
ON For construction of mortality table, number of living of the beginning of eac
h age and the number of deaths during the age are required. The mortality table
should be constructed to represent the past experience as accurately as possible
. So the figures of mortality construction should be as accurate as possible and
based on a large number of persons. The sources of mortality construction can b
e obtained from (i) population statistics, and (ii) records of life insurers.(ii
i) other resources 1. Population Statistics The insurer gets number of living at
each age from the census records and the number of deaths from municipal and ot
her death records. The population statistics will reveal how many persons have d
ied at what age. So, with the radix of total number of persons at the beginning,
it can be calculated how many died in a particularly age. The calculation of mo
rtality table on this basis is not very easy and correct. Criticism The populati
on statistics is not very much useful to insurers. It was applied only when ther
e was no insurance experience in this field. (i) The accuracy of population stat
istics is doubtful in absence of age-proof. There has been over estimation or un
der-estimation in several cases. Sometimes, members of a certain section of soci
ety are unaware of ages. (ii) It has been also noticed that some deaths are unre
corded. It is difficult to know exactly how many deaths are unrecorded and simil
arly. It is also difficult to know exactly how many deaths occurred a particular
age. .. (iii) Census figures are available only after 10 years and therefore, i
t would not be very recent figure. A particular census figure may be biased with
the abnormality of the year. (iv) Interpolation and extrapolation are involved
and correct figures are generally not known.
(v) The population statistics will give statistics of all types of persons witho
ut any separation while the insurer requires mortality of only insurable lives.
Mortality for standard and substandard lives are required separately. 2. Records
of Insurers The records of insurer give a correct figure because the death rate
s can be correctly recorded. No death will go unrecorded, correct number of pers
ons living and dead for each age can be known. Collection of figures is done fro
m the records of as many insurers as possible in large numbers but is not more t
han 10 years covering, favorable and unfavorable years. Generally 10-year period
may be quite sufficient. The abnormal years are excluded from the sample. Separ
ate mortality tables may be prepared for standard lives, sub-standard lives, fem
ale and male lives. Sub-classification according to sex, marital status, occupat
ion, geographical area, class may be made and tables are constructed separately.
The counting of persons is done very cautiously, withdraw and lapsation are exc
luded. Persons included for calculation caused exposed to risk. If the calculati
on starts at the withdrawal from this number is excluded. Year wise aggregation
of number of deaths and number of living persons is done from the information of
all insurers. Mortality rate at every age will be counted by dividing the numbe
r of expired lives by number of exposed lives. 3. Other sources: Other sources a
lso used for construction of mortality tables, such as patient's register mainta
ined by the hospitals, statistics relating to health and deaths, lives statistic
s of Hindu male members, etc. which are more reliable and trustable. The mortali
ty table constructed on the basis of these statistics shall be more reliable. Pr
ocess of Construction of Mortality Tables The process of construction of mortali
ty table is based upon scientific methods and follows the following steps: 1. Id
entification of Objectives: The purposes of construction of mortality tables may
be for determination of premiums evaluation of mortality rate or some other obj
ectives. As such the purpose for which the mortality table is to be constructed
should be clearly identified and determined 2. Selection of Statistical Methods:
After the determination of objectives, the next step must be to select the stat
istical method which should be applied for this purpose. 3. Sources of informati
on: The next step should be to determine the sources of collecting information f
or construction of mortality tables. For this purpose population statistics or t
he document/records of insurers can be used. While using any of these methods, t
he drawbacks or limitations of such sources of information should be taken care
of. 4. Determination of period of records: The duration of research may be longe
r or shorter. The mortality table formulated for longer period, gets older soon.
As such, as far as possible mortality table should be made for shorter period.
5. Selection of the methods-The following methods are available for construction
of mortality tables: (a) Life-year method (b) Calendar year method (c) Insuranc
e policy method (d) Census method 6. Analysis of the persons included in the ris
ks: Analysis of the persons whose mortality rates are to be determined, also be
included in the table.
7. Determination of mortality rate: First of all the number of persons whose ris
ks have been identified and then the ratio of deaths also be determined for form
ulation of mortality table. 8. Construction of mortality table: The mortality ta
ble may be crude or graduation. Graduation means the process of determining a se
ries of mortality rate. After this, different point constructed in the mortality
table. Then the construction of age, number of survivors, number of deaths duri
ng the year, mortality rate etc. are made. TYPES OF MORTALITY TABLES There are t
hree types of mortality tables: (i) Aggregate Table. (ii) Select Table, and (iii
) Ultimate Table. (i) Aggregate Table. A table constructed without distinguishin
g the select, and ultimate lives is called an Aggregate Mortality Table lives fr
om which the mortality rates of the aggregate lives are derived being a mixture
of the Select' lives and Ultimate lives, the aggregate rates lie between the select a
ltimate rates for the same age attained, that is say, they are lighter than ulti
mate rates but heavier, than the select rates. This is also called Mix or Genera
l Mortality Tables. In these table persons of same age irrespective of considera
tion whether they were insured at age 30 or some years before the age 30. The ta
ble below is an example of aggregate table. Hm Maikaham Graduation Mortality Tab
le (table-4) Age No. of Living at x Lx 96061 95513 94931 94322 93691 No. of Deat
h Deaths Rate between x and x+1 Dx qx=dx lx 548 0.00572 582 0.00608 609 0.00643
631 0.00668 647 0.00691 Survival Rate Force of Mortality at age x No. of Surviva
l at mid age Ix and Ix+ 1 Lx=1/2 {lx+l(x+1)} 95787 95222 94626 94007 96367 Total
Survival No. Tx=Lx 4044238 3948451 3853229 3758603 3664596 Complete Expectatio n o
f life at age x Tx/Lx= 0ex 42.101 41.339 40.590 39.849 39.114 Age
x 20 21 22 23 24
Px=1-qx Ux 0.99428 0.99392 0.99357 0.99332 0.99309 0.00550 0.00592 0.00629 0.006
59 0.00682
x 20 21 22 23 24
This table is used where no selection is required, or non-medical policies are a
ssured. This table is also used in Group Insurance. This is the oldest kind of m
ortality table. This mortality table does not differentiate new or old insured a
t a prescribed age group and the mortality rate for the whole group of insured c
an be identified. For example, 20,000 persons were insured five years back at th
e age of 18. Today they reached the age of 23 years. Today, another 10,000 perso
ns of the age of 23 years also insured. According to this mortality table, the t
otal number of insured now reached to 30,000 and the mortality rate of 30,000 in
sured identified with the help of this table. For the purpose of preparing this
type of mortality table, the insured are selected not on the basis of health con
siderations, but on the basis of claim experience in the past of a number of ins
urance companies. The mortality table of this kind is considered as more accurat
e because (i) the statistics of claims obtained for preparation of this table fr
om different insurers belong to different age-groups, (ii) It relates to economi
cally sound, educated and of high social level, and (iii) It also belongs to peo
ple from different groups.
2. The Select Table. Select mortality table is a table which exhibits not only t
he mortality rate according to age group but also the policies matured. The crea
tor of this table is Dr. Sprag, who constructed this table on the basis of insur
ed male-member of 20 companies. The conclusion arrived from this table is that a
mong the insured of similar age groups, differences can be found in the mortalit
y rate according to the period so far completed by the policies. This means that
the mortality rate win increase according to the time spent after affecting ins
urance. According to select mortality table, less rate of premium is only accept
ed from new insured of the similar age group than the old insured. With the pass
ing of time from the date of affecting insurance, the mortality rate will increa
se. The mortality rate of those joining the scheme newly will be lower and the r
ate of premium also be lower. McClean, while defining the term wrote "A select m
ortality table is one which shows the rate of mortality not only by age but by d
uration of insurance, i.e., time since selection." This way, less rate of premiu
m is recovered from new assureds of the same agegroup in comparison to old assur
eds. Therefore, this type of mortality table has much importance at the present
time of competition. This table can also be used to determine the paid up value
of the policy. But the defect of this table is that this table is effective for
a short period of 5 to 10 years only. Mortality table giving rate depending on b
oth age and duration elapsed since entries are called select mortality tables. T
hus, persons taking policies at different ages are kept separate from each other
for the purpose of the calculation, even though they all may be of the same age
now. This is done because mortality rate among them will not be the same despit
e the same attained age. It will vary according to the duration of insurance bec
ause at the initial stage, all the policy-holders are select after a thorough in
quiry of health. The method to select, only insurable live is called, 'Selection
'. It has been observed that the effect of this selection wears out quickly and
that two groups of persons so selected at different times will not experience th
e same mortality though they are of the same age. The group which has been selec
ted first now is found to experience lighter mortality than another of the age a
t present but selected some time ago. The effect of selection may be eliminated
altogether after a certain period i.e., 5 years. Age 20 21 22 23 Mortality Rate
per 1000 Years of insurance 2 3 4 5 3.9 3.66 3.72 3.76 3.80 3.86 3.g1 3.06. 3.96
4.01 4.07 4.08 4.13 4.18 4.21 4.24 6 years & over 4.31 4.35 4.38 4:41 Age attai
ned 25 26 27 28
1 2.73 2.78 2.83 2.86
The above table shows that the mortality, rate is 2.86 per thousand at age 23 du
ring 1 year after selection, 3.72 per thousand at 22 during 2 years after select
ion, 3.86 per thousand at age 21 during 3 years after selection and 3.96 per tho
usand at age 20 during 4 years after selection. Thus, it reveals that as the sel
ection period passes the mortality rate increases although they are of the same
age at present. The effect of selection is removed after 5 years and the mortali
ty rate will be approximately equal if there are not approximately the same, the
re will be a case of spurious selection, i.e., where effect of selection is not
required. 3. Ultimate Mortality table. A mortality table in which the rates in t
he select period are omitted and only the ultimate rates are tabulated is caned
an ultimate mortality tables. In other words, figures for
policies that still have the effects of selection are not included. In the above
example, the mortality rates for the years will not be included for preparing a
n ultimate mortality table. Ultimate Mortality Table (Table-6) Age at entry 20 2
1 22 23 6 and over 4.31 4.35 4.38 4.41 Age attained 25 26 27 28
Generally both the 'Select' and 'Ultimate' Mortality tables are shown together.
The ultimate table is used for valuation purposes. Where insurer wants to have a
reasonable safety margin and where policies are participating ones, the ultimat
e table is used. It gives maximum possible rate of death.