Legal Definitions - American Experience Table of Mortality

The American Experience Table of Mortality was a pivotal statistical chart developed by insurance companies in the United States during the 1860s. Its primary purpose was to estimate the average lifespan of individuals, also known as mortality rates. By providing these predictions, the table allowed insurers to more accurately calculate the risk associated with providing life insurance policies and, consequently, to determine the premiums policyholders would pay. This table served as a foundational tool for the American insurance industry for nearly a century, remaining widely used until the 1950s.

• Example 1: Setting Life Insurance Premiums

  In 1910, a newly established life insurance company, "Evergreen Assurance," needed to determine the annual premium for a 40-year-old male applying for a whole life policy. Their actuaries would consult the American Experience Table of Mortality to find the projected mortality rates for men of that age. Based on the table's data, they could calculate the statistical likelihood of the policyholder dying each year, allowing them to set a premium that was actuarially sound, covering potential future payouts while ensuring the company's financial stability.

  This example illustrates how the table provided the essential statistical foundation for pricing life insurance products, directly linking predicted lifespans to the cost of coverage for consumers.

• Example 2: Regulatory Oversight of Insurance Practices

  Imagine a state insurance commissioner in the 1930s reviewing the financial health and fairness of premiums charged by various life insurance providers operating within their jurisdiction. When examining a company's rate structure, the commissioner would expect to see that their calculations for life insurance premiums and reserves were based on established actuarial standards, such as those derived from the American Experience Table of Mortality. If a company's rates or reserve calculations deviated significantly from the industry standard without strong justification, it could raise concerns about unfair pricing for policyholders or the company's ability to meet future obligations.

  Here, the table served as a benchmark, demonstrating how regulatory bodies used it to assess the reasonableness and actuarial soundness of insurance products during its period of widespread use.

• Example 3: Historical Analysis of Policy Values

  A financial historian researching the evolution of personal finance in the early 20th century might analyze how life insurance policies were valued for purposes like cash surrender value or loan eligibility. When examining policies issued between the 1870s and 1940s, the historian would frequently encounter that the calculations for these policy values were directly tied to the mortality assumptions found in the American Experience Table of Mortality. This would help them understand why a policy's cash value accumulated at a certain rate or why a loan against a policy was structured in a particular way.

  This example highlights the table's enduring relevance as a historical artifact, providing insight into the actuarial foundations of the insurance industry and its impact on the financial products available to the public during a specific era.