Legal Definitions - mortality factor

The mortality factor is a statistical estimate used primarily by life insurance companies to predict the average number of deaths expected to occur each year within a specific age group. This factor is derived from extensive data compiled in actuarial tables and is a crucial component in determining the cost of life insurance policies.

Here are some examples illustrating the application of the mortality factor:

• Example 1: A Young Adult Seeking Life Insurance
  Imagine a healthy 30-year-old applying for a new life insurance policy. The insurance company will consult its actuarial tables to find the mortality factor for individuals aged 30. Because people in this age group generally have a lower statistical likelihood of dying in a given year, the mortality factor for a 30-year-old will be relatively low. This lower factor contributes to a more affordable premium for the policyholder, as the insurer assesses a lower immediate risk of having to pay out a claim.

• Example 2: An Older Individual Purchasing a Policy
  Consider a 65-year-old individual who decides to purchase a new life insurance policy. When calculating the premium, the insurance company will apply the mortality factor specific to 65-year-olds. This factor will be significantly higher than for a 30-year-old, reflecting the increased statistical probability of death at an older age. Consequently, the higher mortality factor will result in a substantially higher premium for the 65-year-old, as the insurer faces a greater likelihood of paying out the policy sooner.

• Example 3: Group Life Insurance for Employees
  A large corporation decides to offer a group life insurance plan to all its employees, who range in age from 25 to 60. The insurance provider will not use a single mortality factor but will instead consider the mortality factors for each age group represented within the company's workforce. By aggregating these individual age-specific mortality factors, the insurer can calculate an overall risk profile for the entire group and determine the total premium the corporation must pay for the collective coverage. This ensures the premium accurately reflects the diverse age-related risks across the employee base.