Jeffrey Wade
Before offering life insurance, insurance companies need to calculate the probability of an individual's death. This process, known as underwriting, involves collecting and analyzing extensive data to separate individuals who are likely to be sick from those who are likely to remain healthy. To achieve this, insurance companies use valuation mortality tables, which are statistical charts that help calculate death rates for people at different ages. These tables are based on various factors, including age, gender, family health history, and pre-existing medical conditions. Additionally, insurance companies may access prescription drug records, medical databases, and consumer data to assess an individual's risk of mortality. The information gathered is used to set premiums, determine reserves, and ensure the financial stability of the insurance company.
| Characteristics | Values |
|---|---|
| Medical information | Cardiovascular diseases, diabetes mellitus, neurologic disorders, malignancies, arthritis, chronic obstructive pulmonary disease, high blood pressure, cholesterol, family health history |
| Lifestyle choices | Smoking, obesity |
| Prescription drug records | Drugs and dosages, dates filled and refilled, therapeutic class, prescribing doctor |
| Actuarial tables | Commissioners Standard Ordinary (CSO) mortality table, prepared by the NAIC and the Society of Actuaries (SOA) |
| Algorithms | Algorithms that take into account multiple risk factors |
| Mortality tables | Valuation mortality tables, which calculate the statutory reserve and cash surrender values of life insurance policies |
| Underwriting | The process of predicting an individual's death and determining their risk category |
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What You'll Learn
Medical history and pre-existing conditions
Insurers use medical history to determine the likelihood of an individual's death, also known as mortality risk. They consider various factors, including the presence of risk factors and diseases. For example, cardiovascular diseases, diabetes mellitus, neurologic disorders, malignancies, arthritis, and chronic obstructive pulmonary disease are all associated with an increased risk of mortality. By evaluating these conditions, insurers can assign applicants to different risk groups, with those having higher risk factors facing higher premiums.
To obtain medical information, insurers rely on various sources. One common source is prescription drug records, which can provide insights into an individual's health conditions and treatment history. Additionally, specialty consumer reporting agencies, such as MedPoint by OptumInsight, offer prescription history reports and provide a "pharmacy risk score" that represents the expected risk for a group of people.
Another crucial source of medical information is the Medical Information Bureau (MIB), a cooperative data exchange among member insurance companies. MIB's database serves as a comprehensive resource for underwriters to assess an individual's pre-existing medical conditions and calculate their mortality odds. This centralized database enhances underwriting accuracy and assists in combating insurance fraud.
Insurers may also request Attending Physician Statements (APS) to gain detailed insights into the policyholder's health history, treatments, and medical diagnoses. These statements provide a clearer understanding of the policyholder's medical condition and help identify potential risks. Furthermore, insurers often review medical records after a policyholder's death, especially in cases where the cause of death is ambiguous or contested, to determine if pre-existing health conditions contributed to the death and to detect possible fraud.
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Mortality tables and life expectancy
Mortality tables, also known as actuarial life tables, are statistical charts used by insurance companies to calculate the death rate for people at different ages. They are used to determine the legal reserve, or statutory reserve, of an insurance company, which is the amount of liquid assets they are required by law to set aside for claims and benefits. These tables are based on the mortality experience of a population over a relatively short period. For example, the 2022 period life table for the Social Security area population was used in the 2025 Trustees Report.
Mortality tables are used to estimate the life expectancy of an individual based on their age and sex, as well as other factors such as health conditions and lifestyle choices. For example, a 40-year-old male non-smoker purchasing a $100,000 life insurance policy may be expected, on average, to live to 81 years old according to mortality tables. This information is used by insurance companies to set premiums, or the cost of insurance, for individuals.
The use of mortality tables allows insurance companies to assess risks in individual policies and their overall insured population. By spreading the risk across a large number of policies, insurance companies can track the mortality average on which they base their premiums. This process is known as "underwriting". In addition to mortality tables, insurance companies use other tools to predict mortality risk, such as medical databases and prescription drug records. These sources provide information on an individual's pre-existing medical conditions, prescription history, and other factors that may influence their life expectancy.
The final premium cost is influenced not only by an individual's risk factors but also by market demands, competition among insurance companies, and medical and ethical issues. For example, non-smokers may refuse to pay higher premiums to cover the risk of smoking, and thin clients may not want to pay for the risk of obesity. As a result, insurance companies may offer reduced premiums as a reward for a healthy lifestyle. Ultimately, the use of mortality tables and other risk assessment tools allows insurance companies to estimate the costs of insurance and calculate optimal premiums.
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Risk factors and diseases
Insurance companies use valuation mortality tables, a statistical chart that calculates the death rate for people at different ages, to determine death risk. This allows them to assess risks in individual policies and their overall insured population. They use this information to set premiums for how much life insurance costs. These tables are also used to set reserves for claims, benefits, and cash surrender value of life insurance policies. Algorithms are used to calculate actuarial age and take into account factors such as age and family health history.
Insurance companies require a lot of information to profitably "underwrite" potential customers, separating risky people (i.e. sick or likely to become sick) from desirable people (i.e. healthy and likely to remain healthy). They use the MIB database, the largest medical database in North America, to access personal and medical information to make an informed calculation of their mortality. They also use prescription drug records from MedPoint by OptumInsight, which holds data on over 200 million Americans.
Risk prediction is necessary to estimate the costs of insurance and calculate optimal premiums. Prediction of individual risk may be improved by adding multiple risk factors such as levels of apolipoproteins A1 and B, lipoprotein(a), and high-density lipoprotein cholesterol. Cardiovascular diseases and cardiovascular risk factors, especially diabetes mellitus, strongly contribute to the variation of mortality risk. Neurologic disorders, malignancies, disorders with arthritis, and chronic obstructive pulmonary disease are also associated with an increased risk of death.
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Prescription drug records
Insurance companies may also use prescription records to identify undisclosed conditions or drug use. For instance, if an individual fails to disclose a history of depression or anxiety, prescriptions for SSRIs or benzodiazepines may be red flags for insurers. Similarly, if an individual dies within the contestability period, insurers will review medical records and prescription drug histories to determine if the cause of death was related to an undisclosed condition or drug use.
It is important to note that insurance companies must have consent to access prescription records, and they are regulated under laws such as the Health Insurance Portability and Accountability Act in the US. While certain medications may be associated with higher risks, each application is reviewed individually, and honesty about prescription drug history is generally recommended.
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Family health history
When applying for life insurance, you will be asked to provide information about your personal medical history, as well as any illnesses or trends in your family health history that could suggest a higher risk of developing different conditions. This is because an early death in your immediate family from certain illnesses can increase your insurance risk.
Insurers are interested in your family's medical history to establish the likelihood of you suffering from inherited conditions in the future. They want to know about the health issues endured by close family members, including biological parents and siblings. Some of the most common health conditions they may ask about include cancer (including breast, colon, lung, melanoma, and prostate cancer), heart disease, kidney disease, and diabetes. They may also ask about additional conditions that can have a genetic component, such as mental health issues like stress, depression, or anxiety.
The impact of family health history on your insurance premiums varies depending on the company. Some insurers are more lenient than others, and older people are less likely to have their premiums impacted by their family health history. If only one relative was affected by a serious illness, it may have little to no impact on your premiums. If a condition was diagnosed late in life (after age 60 or 65), most insurers might disregard it, and it would have no impact on your premiums. Parental heart disease has the most significant effect on underwriting, and it is rare to get exceptions to the best insurance rates if there was an early death of a parent from a heart problem. However, a family history of cancer may still allow you to obtain the preferred best insurance rates with the right companies.
If you have a complicated family medical history and are worried about getting life cover, remember that you can demonstrate that you are taking preventative treatments and building healthy habits to safeguard your health. There are also specialist types of life insurance that cover pre-existing conditions, and many of these won't ask you to undergo a medical examination, but they may be more expensive.
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Frequently asked questions
Insurance companies use valuation mortality tables, which are statistical charts that calculate the statutory reserve and cash surrender values of life insurance policies. These tables help insurers determine actuarial life expectancy and set premiums accordingly.
Mortality tables take into account various factors such as age, gender, and medical history. Medical history includes information such as prescription drug records, pre-existing conditions, and family health history.
Insurance companies use sophisticated software tools and consumer data to access medical information. They may also use third-party databases, such as the MIB database, which provides information on pre-existing medical conditions with the customer's written authorization.
Risk prediction is necessary for insurance companies to estimate costs and calculate premiums. The final premium is influenced by market demands, competition, and medical and ethical issues. Clients may also demand reduced premiums as a reward for a healthy lifestyle.
Underwriting is the process by which insurance companies predict the likelihood of death and separate risky individuals from desirable ones. It involves collecting and analyzing massive amounts of information to determine mortality odds and set premiums accordingly.
