what is mortality table? life insurance vs general insurance,

 MORTALITY TABLE 

What Is a Mortality Table? 

A mortality table, also known as a life table or actuarial table, shows the rate of deaths occurring in a defined population during a selected time interval, or survival rates from birth to death. A mortality table typically shows the general probability of a person's death before their next birthday, based on their current age. These tables are typically used in order to inform the construction of insurance policies and other forms of liability management.

How a Mortality Table Works? Mortality Tables are mathematically complex grids of numbers that show the probability of death for members of a given population within a defined period of time, based on a large number of factored variables. 

Mortality tables tend to differ in their construction when being catered to men and women are usually constructed separately for men and women. Other characteristics can also be included to distinguish different risks, such as smoking status, occupation, and socioeconomic class. There are even actuarial tables that determine longevity in relation to weight

Types of Mortality Tables In general practice, there are two types of mortality tables.

 1. First, the period life table is used to determine mortality rates for a specific time period of a certain population. 

2. The other type of actuarial life table is called the cohort life table, also referred to as a generation life table. It is used to represent the overall mortality rates of a certain population's entire lifetime. Between the two, the cohort life table is most often used due to its higher applicability to actuarialism. 

INSURANCE PREMIUM Premium is the consideration money that a policyholder has to pay in lieu of the benefit that the insurer promises to confer on the happening of the scheduled eventuality. Insurance is a contract and the policyholder /insured and the insurer are the two parties to the contract. Both parties have rights and obligations. Premium forms the obligation on the part of the insured. 

Modes of payment of premium 

The premium can be paid at one time, when it is called a single premium. It can also be paid in instalments i.e. yearly, half–yearly, quarterly or monthly. Single premiums are rare except in pension plans. Tabular premiums are given in yearly mode. Half–yearly, quarterly and monthly mode instalment is obtained by dividing the tabular premium by 2 or 4 or 12. However before going for this division, one has to allow for certain rebates which are allowed at different rates for different modes under different plans. Insurers allow some rebate on the premium for yearly and half–yearly mode. However, this rebate varies from plan to plan. Premium is always payable in advance. The rebate for yearly and half-yearly mode is given because the insurer earns interest on the advance payment and also because the administrative expenses are reduced because of lesser frequency of issuing renewal premium notices and receipts and maintaining the record

Important elements in computation of Premium There are three important elements in the computation of premium. They are:

 (1) Mortality,

 (2) Expenses of management, 

(3) Expected yield on its investment. 

1. Mortality - The mortality tables are prepared by the insurers on the basis of their experience over a number of years. Though the rate of mortality increases with the increase in age, all insurers charge a level premium which remains constant over the entire duration of the policy term. It is the actuarial science which provides the method to assess such increasing risk and convert it into a level premium. This prediction or estimation of mortality is true for a very large group of insured people and not for any individual insured. Thus, the small premium charged from the total group is used to pay a big sum assured to the unfortunate few who die early. It is also called pooling of resources. Insurance is also known to be a co–operative action. 

2. Expenses of management - Any insurer has to incur expenses for conducting the insurance business. These expenses are not of constant nature. They keep on increasing due to inflationary market conditions. Huge expenses are incurred for procurement of new business, for payment of commission to the agent and other incidental expenses like preparation of policy document etc. Expense is also incurred for servicing of the policies, e.g. collection of renewal premium, valuation to determine bonus payable, payment of premium, valuation to determine bonus payable, payment of Survival Benefit and Death claim and Maturity Benefit etc. 

3. Expected yield on investment : As the above two elements go to increase the premium rate, the expected yield on investment of the collected endowment component of premium goes to reduce the premium rate. However, as the future yield cannot be determined exactly, it is necessary for a prudent insurer to keep a reserve to take care of unexpected fall in the rate of yield. 

Risk, Net/Pure Premium -

Risk Premium :The pure premium needed to cover the expected risks but with no allowance for expenses, commission or contingencies is to be made. Thus, the cost to meet the risk of death for one year at a particular age is known as risk premium. The risk premium is based on the probabilities of death at various ages. Net Premium or Pure Premium : 

A net premium is the premium calculated on the basis of the valuation assumptions to provide the contractual benefits at outset. Its calculation only allows explicitly for interest and mortality. Thus, the net premium covers the risk factor as well as interest earned on investment of fund by the insurers. premium is always less than the risk premium.

CLAIM SETTLEMENT Payment of claim is the ultimate objective of life insurance and the policyholder has waited for it for a quite long time and in some cases for the entire life time literally for the payment. It is the final obligation of the insurer in terms of the insurance contract, as the policyholder has already carried out his obligation of paying the premium regularly as per the conditions mentioned in the schedule of the policy document. The policy document also mentions in the schedule the event or events on the happening of which the insurer shall be paying a predetermined amount of money (S.A.). There may be three types of claim in life insurance policies– 

1. Survival Benefit Claim 

 2. Maturity Benefit Claim 

3. Death Benefit Claim 

(i) Survival Benefit: Survival benefit is not payable under all types of plans. It is payable in endowment or money back plans after a lapse of a fixed period say 4 or 5 years, provided firstly the policy is in force and secondly the policyholder is alive. As the insurer sends out premium notices to the policyholder for payment of due premium, so it sends out intimation also to the policyholder if and when a survival benefit falls due. The letter of intimation of survival benefit carries with it a discharge voucher mentioning the amount payable. The policyholder has merely to return the discharge voucher duly signed along with the policy document. The policy document is necessary for endorsement to the effect that the survival benefit which was due has been paid. The survival benefit can take different forms under different types of policies. 

2. Maturity Claim: It is a final payment under the policy as per the terms of the contract. Any insurer is under obligation to pay the amount on the due date. Therefore, the intimation of maturity claim and discharge voucher are sent in advance with the instruction to return it immediately. If the life assured dies after the maturity date, but before receiving the claim, there arises a typical problem as to who is entitled to receive the money. As the policyholder was surviving till the date of maturity, the nominee is not entitled to receive the claim. The policy under such conditions is treated as a death claim where the policy does not have a nomination. The insurer in such a case shall ask for a will or a succession certificate, before it can get a valid discharge for payment of this maturity claim. In case the policy has been taken under Married Women’s Property Act, the payment of maturity claim has to be made to the appointed trustees, as the policyholder has relinquished his right to all the benefits under the policy. It is for this relinquishment of right that the policy money enjoys a privileged status of being beyond the bounds of creditors etc. If the maturity claim is demanded within one year, before the maturity it is called a discounted maturity claim. This amount is much less than the maturity claim. 

2. Death Claim: If the life assured dies during the term of the policy, the death claim arises. If the death has taken place within the first two years of the commencement of the policy, it is called an early death claim and if the death has taken after 2 years, it is called a non-early death claim.

CLAIM DOCUMENTS & FORMS AND SETTLEMENT PROCEDURE - We will discuss in this section the insurance documents necessary at the time of the final payment. The final payment may relate to the maturity or death claim payment. The documents required for payment of maturity claim: 

 (i) Age proof, if age is not admitted. 

(ii) Original policy document for cancellation.

 (iii) In case assignment is executed on a separate paper, that document has to be surrendered. (iv) Discharge form duly executed.

 (v) Indemnity bond in case the policy document is lost or destroyed, duly executed by the policyholder and a surety of sound financial standing. The documents required for payment of a death claim. (i) An intimation of death by the nominee or a near relative. (ii) Proof of age if not already admitted. (iii) Proof of death.

 (iv) Doctor’s certificate who attended the deceased during his last illness.

 (v) Identity certificate from a reputable person who saw the body of the deceased life assured.

 (vi) Certificate of cremation or burial from a reputable person who attended the funeral. 

(vii) An employer certificate if any, of the deceased. If the policy has been assigned validly or if there is a valid nomination in the policy document, no further proof of title to the policy money is necessary. In other cases, the satisfactory evidence of title to the estate of the deceased is required from competent court of law.