Ever wondered how a life insurance company decides which applicants are high-risk and which applicants get preferential low premiums? It’s part of the insurance underwriting process, and behind that process is someone called an actuary.
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An actuary is someone who uses the power of math to predict risk. Those probability and statistics classes you skipped in college? Actuaries aced them. Actuarial science doesn’t just come in handy for underwriting life insurance. Actuaries also model risk in other sectors, especially the financial sector. They can predict whether a pension plan is going to go bankrupt, for example.
What Does an Actuary Do?
Let’s stick to the life insurance realm. The most visible contribution of actuaries takes the form of life expectancy tables. You can consult these tables to find out how many more years you’re likely to live, if that’s your thing. The folks who create life expectancy tables have a lot of influence. Case in point: the Social Security Administration relies on life expectancy tables to predict the number of years it will have to cut checks to seniors. Life insurance companies use life expectancy table to evaluate the risk that a policyholder will die, leaving the insurance company on the hook for a big payout.
Yes, there is a team of highly educated, well-paid individuals sitting around calculating when you’re going to die. Well, maybe not you specifically, but someone in your demographic, with your risk factors.
When you apply for a 20-year term life insurance policy, you’re obviously hoping you’ll make it through the 20 years. But the life insurance company is also rooting for you to make it – not because they’re personally invested in your well-being, but because they don’t want to have to pay your beneficiaries. Insurance companies rely on actuaries to tell them how likely it is that, say, a 40 year-old male with asthma will be alive in 20 years.
The detailed questions you answer when applying for a life insurance policy and during the insurance medical exam? All that information helps put you in your statistical box. Your lifestyle, personal medical records and family medical history paint a picture of your health and your longevity. There are lots of online calculators that will take your answers to lifestyle and health questions and then tell you your life expectancy. We don’t know how accurate they are, but we did enjoy learning that we can expect to live to 102. All the more reason to get started with retirement planning, right? Right.
How to Become an Actuary
Actuaries show up on a lot of “Top Careers” lists. That’s because they’re well-compensated, and because it’s a rapidly growing field. The Bureau of Labor Statistics lists the 2012 median annual salary for actuaries as $93,680. That’s the good news. The bad news is that it’s not the easiest field to enter, due to the high level of mathematical acumen being an actuary entails.
If you want to become an actuary, plan on hitting the books. It’s not a get-rich-quick scheme by any means. You’ll need to pass a series of rigorous professional exams and complete what’s called Validation of Education by Experience. The latter is divided between three topics: Economics, Corporate Finance and Applied Statistical Methods.
The Society of Actuaries (SOA) and the Casualty Actuarial Society (CAS) both offer resources to help aspiring actuaries prepare for their exams. The SOA and the CAS are also the two professional groups offering certification for actuaries. First, you become an “Associate” of one of the societies, and then pass further exams to become a “Fellow.” That’s when you know you’ve made it.
You can take your exams before entering the job force, or start preparing for the exams after you begin working at, say, a life insurance company. Many employers offer support for employees who are studying for their actuarial exams, and some even pick up the tab for educational expenses. In that respect, getting certified as an actuary after you’ve entered the field is a similar process to becoming a Certified Financial Analyst (CFA) while working in the financial sector.
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Actuaries have a reputation for being a rather serious breed. It’s a profession that skews heavily male, and actuaries are not exactly known for being life-of-the-party types. A quick internet search for “famous actuaries” didn’t turn up any names we recognized, but then fame isn’t everything. And hey, we think anyone who can look at a set of data and use it to model the future is pretty darn interesting. Maybe it’s time for the actuarial profession to get an image boost?
If you think being an actuary might fulfill your math-focused dreams, talk to an actuary and ask him or her about the pros and cons of entering the field. Then, you’ll need the dedication to stick with the professional training course. Just know you’ll likely be rewarded with a spot in a challenging, secure and remunerative field, and those don’t grow on trees.
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