Morbidity Tables
Actuarial tables showing the expected incidence of sickness and injury by age, used to price accident and health insurance (the health analogue of mortality tables).
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Practice This Concept
Which statement correctly describes how an insurer uses the law of large numbers when pricing disability income insurance?
It relies on morbidity tables, which show the expected frequency of sickness and disability in a large group, to estimate future claims — Morbidity tables summarize the frequency and duration of sickness and disability observed across large groups of insureds. By applying the law of large numbers, the insurer uses these tables to estimate how many policyholders will become disabled and how long benefits will be paid, which is the foundation of premium setting. The law works for the group as a whole — it cannot predict which specific individual will claim, and it certainly does not guarantee that any one insured's experience will match the average.
National insurance concept
An actuary calculates that a 40-year-old applicant has a 0.3 percent chance of becoming disabled within the next year. This figure is a measure of the applicant's:
Risk of disability — The chance that a loss will occur is the definition of risk, and expressing it as a percentage quantifies that risk. Insurers use morbidity tables and similar data to measure the probability of illness or disability within a population group. This measured probability is what the law of large numbers makes predictable and what premium rates are built upon.
National insurance concept
- General InsuranceWhich statement correctly describes how an insurer uses the law of large numbers when p…
- General InsuranceAn actuary calculates that a 40-year-old applicant has a 0.3 percent chance of becoming…
- AnnuitiesAn insurer pricing a lifetime annuity must rely primarily on which statistical tool?
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