Actuarial tables
Before we discuss actuarial tables, it is very important to understand who is actuary. Actuary has been described as a statistics professional that works for insurance company and evaluates the application submitted by a person as well as his medical records to know how much a person is going to live. Actuary is a very educated person and uses his vast knowledge to predict the future occurrences on the basis of past occurrences.
Actuarial tables, also called as life tables, are the tables that summarize the probability regarding the individual giving birth or his death in the successive periods of life. Actuarial tables are generally used for determining the net reproductive rate, which is the mean number of offspring produced during a certain period and the survivorship, which is the proportion of population that is likely to survive to a given age from birth. Now the question arises how actuarial tables are useful for the insurance companies and government of any nation? As far the insurance companies are concerned, they make use of actuarial tables in determining the premium of life insurance policies issued by them by estimating the risks involved with respect to death. Actuarial tables are used by government of various nations, states etc in determining the future needs pertaining to the health services and the educational requirements by taking into consideration the net reproductive rates. Actuarial tables differ from one nation to another. Even these differ from one state to another. These tables are sometimes also called as mortality tables. With the help of actuarial tables, information regarding the death of a person before his next birthday can easily be determined. Different types of information derived from the actuarial tables apart from above include life expectancy of various types of individuals standing at different levels of age, original birth cohort proportion that is still alive, and the longevity characteristics of cohorts.
Actuarial tables for men and women are prepared separately, as these two have different mortality rates. There are some other characteristics also that can be used for distinguishing risks attached with two like smoking status and for socio economic class, occupation etc. Apart from insurance companies and government usage, actuarial tables are also used in different fields of science like biology, epidemiology etc. Let us now discuss use of actuarial tables in the field of insurance.
Actuarial tables in insurance
For any insurance company, actuarial tables are indeed very important. This is because without these tables, an insurance company cannot price its various types of products. If products are not priced correctly, there may be large number of claims and the insurance company may become insolvent. Thus, actuarial tables enable insurance companies in preserving adequate reserves and in development of products with respect to future risks like death, disability, sickness etc. All the work with respect to actuarial tables in the insurance sector is carried out by actuaries. These professionals develop mathematical tables and models with respect to causes and occurrence of different types of events. This is basically done by studying different types of events and their severity in recent past and then developing the probabilities regarding the changes that can occur and the re-occurrence of such incidents of events. For example, if it is derived from the actuarial tables that life expectancy has been increased in the past some years and this trend is likely to continue, the life insurance policies would be priced accordingly and a person may have to pay less premium as compared to earlier policies. If it is said that whole basis of life insurance policies is actuarial table, it would not be incorrect. Mostly, the trends are used in percentage form as depicted by the actuarial tables to get the required information. Actuarial tables are also called as morbidity tables because of disability rates and recovery rates associated. If any other decrements are required to be covered, they may also be called by other names. With the help of computers, preparing and using actuarial tables has become very easy. These tables are now being used with respect to other behaviors apart from traditional uses. This comprises debt load, gambling etc. Specialized calculations for estimating different types of risks can also be made with the help of actuarial tables.
Related aspects
It has been observed in many cases that whenever a person hears about actuarial table, he thinks of statistics regarding life expectancy, death etc and confined these tables to such information only. But this is not true. Actuarial tables are very interesting and can be used for various types of implications in different types of fields other than insurance industry. A person can take many types of business decisions, personal decisions etc on the basis of these tables. In fact, political decisions can be based on actuarial tables. As per the reports released by U. S government, if a person gets birth today, he is expected to live up to age of 74 years if male or up to age of 80 years, if female. If understood in other terms, it can be said that as soon as an infant dies, the average life expectancy rate is lowered down. This results in increase of life expectancy as a person grows. Thus, at the age of 20 years, the life expectancy of a person would be increased to 75 years and they can think of living for another 55 years and can plan accordingly. Thus, actuarial tables are interesting for a common man too. In above example, relative lifespan have been as constant. If a person contemplates on the actuarial tables for the year 2001, he would come to know about the remaining years of his life by looking at his age group. Since medical research and treatments are becoming advanced day by day, increase in life expectancy rates are inevitable. As per the study conducted, it has been observed that for every 5 years of medical research, a person is adding 1 year in his life expectancy rates in the actuarial table.
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