Q.What is a mortality table? State the three factors on which the premium of a life policy depends.

The premium is calculated, not guessed, and the mortality table supplies the most important input for that calculation.

Mortality table. A mortality table (or life table) is prepared from the recorded death experience of a very large number of lives and shows, at each age, how many out of a starting group are expected to be living and how many to die during the year. Its main columns are:

• Age (x)
• Number living at that age (lₓ)
• Number dying during the year (dₓ), where dₓ = lₓ − l(next age)
• Rate of mortality (qₓ = dₓ ÷ lₓ) — the probability that a person aged x dies within the year.

It is the basic tool from which death probabilities — and hence premiums — are worked out.

The three factors determining the premium.

1. Rate of mortality — the higher the chance of death at a given age (read from the table), the higher the premium; premiums therefore rise with age.
2. Rate of interest — the premium is received in advance and invested, earning interest before the claim is paid; a higher assumed rate of interest reduces the premium needed. …

Do not confuse qₓ (rate of mortality) with dₓ (number dying) — qₓ is a probability (dₓ ÷ lₓ). Students also forget the in …