What Is Ultimate Mortality Table?
Ultimate mortality tables list the percentage of life insurance purchasers expected to still be alive at each given age, beginning with age 0, which represents 100% of the population, up to age 120. Typically, the data is based on a population of life-insurance policyholders from either a particular insurance company or group of companies, rather than the entire U.S. population.
The information underlying ultimate mortality tables is called survivorship data and takes into account many risk factors. Insurance companies use the data underlying these tables to price insurance products. The profitability of insurance products depends partly on companies' accurately analyzing the data behind ultimate mortality tables.
To a lesser degree, investment-management companies may use ultimate mortality tables to help their customers make determinations about their own respective life expectancies and how much money they may need in retirement.
Understanding Ultimate Mortality Table
Ultimate mortality tables usually remove the first few years of life insurance data from the analysis, in an attempt to more accurately show the rate of mortality after removing so-called selection effects. People who just received life insurance will have usually just had a medical exam and are relatively healthy, and so not including them removes this bias.
Along with death and survival rates among age groups and sexes, mortality tables may also list survival and death rates in relation to weight, ethnicity, and region. Some also break out statistics for smokers and non-smokers.
In addition, some may include an aggregate mortality table, with death-rate data on the entire study population that has purchased life insurance, without a categorization based on age or time of purchase. The data in an aggregate table depends on the combined statistics of several, if not many, individual mortality tables.
Accuracy of Ultimate Mortality Tables
As is the case for other types of statistical data, the accuracy of ultimate mortality depends on the breadth of data in the survey. The accuracy of an insurance company's ultimate mortality table may not be as accurate as one compiled by an organization that's able to compile data sets from multiple insurers.
For example, the Society of Actuaries typically produces an ultimate mortality table each year that is based on a fairly wide data set. It calculates mortalities for both men and women in the U.S., and it also includes a blended table with the ultimate mortality of the entire U.S. population.