Scribd
Upload
27 views2 pages

Life Table

The document discusses life tables and survival distributions which are used in insurance. A life table provides information like life expectancy and mortality rates by age. It can be a cohort or current table. Survival distributions model the probability of living past certain ages and are important for life insurance. Common distributions include uniform and those based on force of mortality.

Uploaded by

ae22shivam
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
27 views2 pages

Life Table

The document discusses life tables and survival distributions which are used in insurance. A life table provides information like life expectancy and mortality rates by age. It can be a cohort or current table. Survival distributions model the probability of living past certain ages and are important for life insurance. Common distributions include uniform and those based on force of mortality.

Uploaded by

ae22shivam
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 2

Optimal Insurance

01 November 2023 19:06

• Cohort: the basic unit of the life table defined as a group of same-aged persons (birth cohort) who
experience the same significant event in a particular time period (marriage of graduation cohort)
• Life expectancy: the average number of years remaining to a person of specified age
• Life span: the maximal number of years for a given species
• Cross sectional survey: Data gathered from multiple groups over a short period of time
• A life table is a detailed description of the age-specific mortality, survival and expectation of life of
a population
• It helps answer questions such as:
○ what is the life expectancy of the average newborn?
○ How many years remains for the average 75 year old woman in the country?
○ Over what age groups do most death occur?
• There are two general forms of the life table
○ Cohort life table
 Includes the mortality experience of a particular cohort from the moment of birth
though consecutive ages until none remains in the original cohort
○ Current life table (cross-sectional)
 Assumes a hypothetical cohort subject throughout its lifetime to the age-specific
mortality rates prevailing for the actual population over a specified period and is used
to construct a synthetic cohort
○ Both form of the life table may be either single decrement or multiple decrements
○ The first of these lumps all forms of death into one and the second disaggregates death by
cause
• Notations
○ 𝑞 : probability that someone aged exactly x will die before (x+1)th birthday
○ 1−𝑞 =𝑝
○ 𝐼 : number of people who survive to age x
𝐼 = 𝐼 (1 − 𝑞 ) = 𝐼 ⋅ 𝑝
𝐼
𝑝 = ⎯⎯⎯⎯
𝐼
○ 𝑑 : number of people who die aged x
𝑑 =𝐼 −𝐼
○ ⬚ 𝑃 : the probability that someone aged exactly x will survive for 𝑡 more years, i.e., live
up to atleast age 𝑥 + 𝑡 years, i.e,
• Survival distributions
○ An insurance policy can embody two different types of risk
 For some typoes of insurance (such as life insurance) the variability in the claim is
only the time at which the claim is made, since the amount of the claim is specified
by the policy
 In other types of insurance (such as auto or casualty) there is variability in both
the time and amount of the claim
○ The central difficulty in issuing life insurance is that of determining the length of the
future life of the insured
○ Denoted by X the random variable which represents the future lifetime of a newborn
○ For mathematical simplicity, assume that the distribution function of X is absolutely
continuous
○ The survival function of X, denoted by s(x) is defined by the formula
 𝑠(𝑥) = 𝑃[𝑋 > 𝑥] = 𝑃[𝑋 ≥ 𝑋]
 Whereas the last equality follows from the continuity assumption
The assumption that s(0)=1 will always be made

EOI Page 1
○ The assumption that s(0)=1 will always be made
○ In the past there has been some interest in modelling survival functions in an analytic
way
 The simplest model is that due to Abraham DeMoivre
 He assumed that 𝑠(𝑥) = 1 − ⎯⎯for 0<x<w where w is the limiting age by which all
have died
 The DeMoivew law is simply the assertion that X has the uniform distribution on
the interval (0,w)
○ Life insurance is usually issued on a person who has already attained a certain age x
 For notational convenience denote such a life aged x by (x)
And denote the future lifetime of a life aged x by 𝑇(𝑥)
○ What is the survival function for (x)?
 From the discussion above, the survival function for (x) is = P[T(x)>f]
 Set standard notation set
□ 𝑝 = 𝑃[𝑇(𝑥) > 𝑡]
 Generally speaking, having observed (x) some additional information about the
survival of (x) can be inferred
 For example, (x) may have just passed a physical exam given as a requirement for
obtaining life insurance
 From now this type of possibility is disregarded.
 Operating under this assumption
□ 𝑝 = 𝑃[𝑇(𝑥) > 𝑡] = 𝑃 𝑋 > 𝑥 + 𝑡[𝑋 > 𝑥] = 𝑠(𝑥 + 𝑡)/𝑠(𝑥)
 𝐸[𝑇(𝑥)] = 𝑡𝑃 𝑑𝑡
 Tis expectation is called the complete expectation of life and is denoted by ° 𝑒
𝑓 (𝑥) 𝑠′(𝑥)
□ 𝜇 = ⎯⎯⎯⎯⎯⎯⎯⎯ = − ⎯⎯⎯⎯⎯
1 − 𝐹 (𝑥) 𝑠(𝑥)
Represents the death rate per unit age per unit survivor for those attaining
age x, and is called the force of mortality

EOI Page 2

You might also like