Life expectancy is the statistical estimate of how many years a person is likely to live based on their age, gender, lifestyle and other demographic factors. Life insurance companies assess these factors through medical underwriting and actuarial tables when someone applies for a policy. Life expectancy is a key consideration for insurance companies when configuring insurance premiums and death benefits.
What Is Life Expectancy?
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KEY TAKEAWAYS ON LIFE EXPECTANCY IN LIFE INSURANCE
- Life expectancy significantly impacts life insurance premiums.
- Longer expectancy results in lower premiums, whereas shorter expectancies lead to higher costs.
- Various factors such as age, gender, health, lifestyle choices and family medical history play major roles in determining an individual's life expectancy and insurance rates.
- Insurers use medical underwriting and actuarial tables to calculate life expectancy and determine life insurance benefits and premium costs.
How Life Expectancy Is Calculated
Life expectancy is determined through statistical analysis of mortality data. Insurance companies use actuarial tables to analyze life expectancies and other data to determine insurance premiums and policy terms. Generally speaking, those with a longer life expectancy can expect to pay lower premiums, while those with shorter life expectancies pay higher premiums.
The following is a sample of a life expectancy table from the National Vital Statistics Reports showing estimates of survival rates and predicted lifespans for selected age groups. In this example, life expectancy refers to the average number of years of life remaining for those who have reached a given age (x).
Age (between x and x+1) | Mortality Rate (qx) | Number of Lives (lx) | Number of Deaths (dx) | Life Expectancy (ex) |
|---|---|---|---|---|
30-31 | 0.001309 | 97,967 | 128 | 50.2 |
31-32 | 0.001371 | 97,839 | 134 | 49.2 |
32-33 | 0.001436 | 97,705 | 140 | 48.3 |
.... | .... | .... | .... | .... |
60-61 | 0.009090 | 88,415 | 804 | 23.5 |
61-62 | 0.009808 | 87,611 | 859 | 22.7 |
62-63 | 0.010518 | 86,751 | 912 | 21.9 |
63-64 | 0.011202 | 85,839 | 962 | 21.1 |
64-65 | 0.011890 | 84,877 | 1,009 | 20.4 |
65-66 | 0.012621 | 83,868 | 1,059 | 19.6 |
Factors Influencing Life Expectancy
Life expectancy is influenced by several key factors such as age, gender, family history and lifestyle choices, all of which help explain why life insurance premiums may be higher for some people compared to others.
Age
Age is a significant factor in life expectancy calculations since the risk of health issues generally increases with age. Younger individuals typically have a longer life expectancy, leading to lower life insurance premiums, whereas older individuals face higher premiums due to reduced life expectancy.
Gender
Gender is another life expectancy factor, as data suggests that women generally have a longer life expectancy than men. This difference can influence life insurance premiums and policy terms, reflecting the varying risk profiles for men and women.
Lifestyle
Tobacco use, excessive alcohol consumption, lack of physical activity and poor dietary habits can significantly reduce life expectancy. For instance, being overweight or obese elevates the risk of numerous health issues like heart disease, diabetes and certain types of cancers.
Family History
Genetic predisposition to specific health conditions can also affect lifespan and life expectancy. Insurers may consider these risks in premium calculations and policy terms.
Occupation
Some occupations carry higher risks due to exposure to hazardous conditions or stressful environments, potentially lowering life expectancy. Such occupations may result in higher life insurance premiums for the policyholder.
Environment
Your environment (including where you live and work) can impact your life expectancy. Factors such as air and water quality, safety and access to nutritious food and opportunities for physical activity all play a role.
How Life Expectancy Impacts Life Insurance
Life expectancy is a critical factor that insurers consider when administering life insurance policies as it allows them to estimate the probability that a policyholder will pass away during the policy term — and, in turn, that the company will need to make a payout. This data-driven assessment influences premium pricing and death benefit eligibility and affects the cost of maintaining a policy.
Premiums and death benefits are highly customized to reflect an individual's estimated life expectancy and risk factors. This approach enables insurance companies to balance the projected risks with the financial coverage provided.
Premium Calculations
A higher life expectancy typically results in lower premiums, as it implies a lower risk for the insurer. Conversely, a shorter life expectancy, indicating higher risk, increases premiums.
Death Benefit Eligibility
Shorter life expectancies may result in smaller death benefits. For example, if someone signing up for a policy is at high risk of passing away within the next decade, they’ll be eligible for a smaller death benefit than someone with a longer life expectancy.
Life Expectancy FAQ
MoneyGeek addresses some important questions to deepen your understanding of how life expectancy impacts life insurance.
How does age affect life insurance premiums?
Age directly impacts life insurance premiums, with younger individuals paying less due to longer average life expectancies and older individuals typically paying more.
Can family medical history affect my life insurance premiums?
Yes, family medical history can affect premiums, as hereditary health risks can alter your perceived life expectancy.
What is medical underwriting in life insurance?
Medical underwriting is the process whereby insurers evaluate your health status and medical history to determine life expectancy and policy costs.
How do life insurance companies calculate life expectancy?
Life expectancy calculations are statistically based and according to factors including (but not limited to) age, gender, family medical history, lifestyle and occupation; these calculations provide a reliable guide for setting insurance rates.
Related Content
Below are resources related to life expectancy in the context of life insurance. These links provide additional insights and data to help you further understand how life expectancy impacts life insurance.
Average Life Expectancy in the U.S.— A comprehensive overview of average life expectancy in the United States, which provides contextual data that life insurance companies may use to determine policy premiums and terms.
Mortality Statistics — Mortality statistics are crucial for understanding life expectancy trends and factors. This page delves into the statistics that underpin life insurance rates and actuarial calculations.
What Is Evidence of Insurability for Life Insurance? — Evidence of insurability is a key concept in life insurance, often involving assessments related to life expectancy. This resource explains the process and its significance regarding life insurance.
Metros With Longest Life Expectancy — Understanding the geographical variation in life expectancy can be insightful. This page highlights regions with longer life expectancies, which can influence life insurance premiums and policies.
About Nathan Paulus
Nathan Paulus is the Head of Content Marketing at MoneyGeek, with nearly 10 years of experience researching and creating content related to personal finance and financial literacy.
Paulus has a bachelor's degree in English from the University of St. Thomas, Houston. He enjoys helping people from all walks of life build stronger financial foundations.
sources
- Centers for Disease Control and Prevention. "Deaths: Final Data for 2020." Accessed November 8, 2024.
- Harvard Health Publishing. "Why Men Often Die Earlier Than Women." Accessed November 8, 2024.
- National Institute of Diabetes and Digestive and Kidney Diseases. "Health Risks of Being Overweight." Accessed November 8, 2024.
- National Center for Biotechnology Information. "Genetic Factors in Disease." Accessed November 8, 2024.