What is a Valuation Mortality Table
Valuation mortality tables are statistical charts used by insurance companies to calculate statutory reserves and cash surrender values for life insurance policies. The mortality table shows the mortality rate for any given age, expressed as deaths per thousand people at that age; it provides statistics about the likelihood that a person of a given age will live X years. This enables insurance companies to assess the risks in the policy.
Understanding Valuation Mortality Tables
Valuation mortality tables usually have a margin of safety combined with mortality to protect insurers. Life insurers use the Valuation Mortality Table to determine the amount of liquid assets – the statutory reserves – that regulations require them to set aside for claims and benefits.
- Valuation mortality tables are statistical charts used by insurance companies to calculate claims and benefit reserves and cash surrender values for life insurance policies.
- The forms incorporate currency buffers to protect insurers from bankruptcy.
- The algorithm for calculating actuarial age takes into account a complex set of factors, including age and family history.
How the Mortality Chart Works
Section 7520 of the Internal Revenue Code requires the use of a set of actuarial tables to evaluate annuities, life estates, residual estates, and returns for all purposes under title 26, except for certain purposes set forth in or by statute.these are Available on the IRS website. The Commissioner’s Standard Ordinary (CSO) Mortality Table, developed by the National Association of Insurance Commissioners (NAIC) in conjunction with the Society of Actuaries (SOA), is used to calculate the age of life insurance for the 50 states.Be
Insurance companies use mortality tables to determine your actuarial life expectancy, which may be more or less than your life expectancy. But for millions of people, these tables are very accurate in assessing insurance premiums and expenses.
Example of Valuation Mortality Table
For example, a non-smoking male wants to buy $100,000 worth of life insurance at age 40. Using mortality tables, the insurance company estimated that the average person would live to be 81 years old. Thus, the insurance company can rely on 41 years of premium payments before it has to pay the death benefit. Maybe you will die tomorrow, or live to be 100 years old. This is irrelevant for an insurance company, which sells tens of thousands of policies a year and can rely on a large number of policies to average out premiums.
This is a simple example of how actuaries view longevity, but there is more. The actuary’s algorithm takes into account many other factors, such as whether you have high blood pressure or cholesterol, your family history, and more. However, the four major factors that affect longevity are: age, gender, smoking and health.
Consumers can use Online calculator to roughly estimate your actuarial age. This is useful, for example, in financial planning and when deciding to start collecting Social Security.