A life expectancy table offers a rough guide to the number of years a person has left to live. It sounds morbid, but it can be a useful tool for retirement planning and estate planning. When we think ahead to retirement, most of us focus on the year we’ll stop working, not on the number of years we’ll live off of our retirement savings. That can lead to a dangerous retirement savings shortfall. Another reason life expectancy tables are important? Life insurance companies rely on them when deciding whose application to accept – and how much to charge. You may want to work with a financial advisor to help yo prepare for the coverage you need and to see how much you might pay.
What Are Life Expectancy Tables?
Life expectancy tables, or mortality tables, are the product of a lot of hard work by some very smart cookies: professional actuaries. Actuaries calculate the risk of death for men and women of all ages and publish their results in life expectancy tables, also known as actuarial tables or mortality tables.
When you look at a life expectancy table, you can find your age and gender and learn the number of years you likely have left. Of course, these tables aren’t personalized. If you’re a real daredevil, you might be more likely to die before your estimated life expectancy is up. If you have a lot of centenarians in your family, you may live longer than a mortality table would predict.
How Do Life Insurance Companies Use Mortality Tables?
Life insurance companies have their own actuaries and formulas for calculating mortality risk. They also look at the overall mortality risk of the pool of people they insure, not just the mortality risk of a single applicant. That’s because too much risk in a customer pool makes bad financial sense for a life insurance company.
Life insurance companies rely on a combination of mortality tables and personalized health evaluations to estimate how long a life insurance applicant is likely to live. When you buy a term life insurance policy, you’re making a kind of bet with the life insurance company. You “win” the bet if you die and the life insurance pays your family.
The life insurance company “wins” if you outlive the term of your policy, paying premiums but never triggering a payout. Life insurance companies offer the lowest premiums to people who are healthy and young, and likely to live to a ripe old age. So what makes someone that ideal customer?
Types of Life Expectancy Tables
There are only two generic types of life expectancy tables used by actuaries. Both types of tables can be used to estimate life expectancy based on where you live and the activities you participate in. These are:
What Factors Impact Life Expectancy?
Without wanting to get too… medical, let’s go over some of the factors that impact life expectancy. The factors that make you likely to live until you’re old and wrinkly also make it more likely that you’ll find an affordable life insurance policy.
The Bottom line
While this is by no means an exhaustive list, it should give you an idea of what factors lead to a long life. Starting retirement planning early has its perks. Talking over your life expectancy table with your insurance company is a useful first step and will be beneficial in the long run. Don’t wait to get the life insurance coverage you need. The older you are, the more you may have to pay.
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