Mortality Risk and Life Insurance

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Questions and Answers

Which factor is LEAST considered when life insurance companies classify individuals into risk groups?

Smoking status
Family history
Current investment portfolio (correct)
Age

Why do individuals often postpone purchasing life insurance?

They believe life insurance is only useful for older people
They are unaware of the risk factors associated with mortality
They avoid contemplating their own mortality (correct)
They think the premiums are too high regardless of age

In insurance terms, what does 'mortality rate' refer to?

The probability of death at a specific age (B) Signup and view all the answers

What assumption underlies the calculation of life expectancy?

Past mortality experiences of a group will remain consistent in the future. (A) Signup and view all the answers

Which of the following best illustrates managing mortality risk?

Purchasing life insurance to provide financial security to dependents (B) Signup and view all the answers

If Statistics Canada data indicates that the median male aged 65 in Canada will live another 19.5 years, what does this imply?

On average, 50% of men aged 65 will live until at least age 84.5 (D) Signup and view all the answers

What is the primary reason life insurance companies categorize individuals into similar risk profiles?

To accurately estimate an individual’s risk of death based on historical data. (D) Signup and view all the answers

Which of the following factors, if changed, would likely have the MOST significant impact on an individual's life insurance premium?

Switching from being a non-smoker to smoking two packs of cigarettes a day (A) Signup and view all the answers

How does considering life expectancy MOST benefit financial planning?

It allows for estimating how long retirement funds need to last. (C) Signup and view all the answers

What is a key difference between life expectancy and probability of death?

Life expectancy looks forward, while probability of death focuses on a specific moment. (C) Signup and view all the answers

Why is it important to address the risk of death, regardless of age?

Because the risk of death is always present, even if small (D) Signup and view all the answers

What is the significance of life insurance companies classifying people into groups with similar risk profiles?

It enables them to estimate an individual’s risk of death more accurately. (D) Signup and view all the answers

According to the information, what is one reason why people delay buying life insurance?

They don’t want to think about their own death. (D) Signup and view all the answers

Which of the following statements about mortality rate is most accurate?

It is influenced by various factors, including age and health. (A) Signup and view all the answers

What does life expectancy primarily indicate?

The average number of years a person is expected to live from a certain age. (A) Signup and view all the answers

According to the example provided, if the median male in Canada aged 65 will live another 19.5 years, what can be inferred?

50% of men aged 65 will die before reaching 84.5 years old. (B) Signup and view all the answers

Which of the following is NOT mentioned as a factor influencing a person’s risk of death?

Education level (C) Signup and view all the answers

What does the text suggest regarding the risk of death?

It is a constant risk for everyone, regardless of age. (A) Signup and view all the answers

How do life insurance companies use historical mortality data?

To estimate an individual’s risk of death. (B) Signup and view all the answers

Which of the following best describes the relationship between age and the probability of death?

The probability of dying increases with age. (A) Signup and view all the answers

Flashcards

Mortality Rate

The chance of dying at a specific age.

Life Expectancy

The average number of years a person is expected to live from a certain age, based on group data.

Factors Influencing Mortality Risk

Factors like age, gender, family history, health, smoking, job, and income influence your risk of death.

Study Notes

People often postpone purchasing life insurance because they avoid thinking about their own mortality
The risk of death is a constant, regardless of age
The probability of dying at a specific age is the mortality rate
Factors influencing mortality risk include age, gender, family history, health, smoking status, job and income level
Life insurance companies categorize people into groups with similar risk profiles using historical mortality data to estimate individual risk
Risk of death can be viewed through life expectancy and probability of death.
Life expectancy projects the average number of years a person is expected to live based on their group and age, assuming consistent mortality experience
Statistics Canada data indicates that Canadian males aged 65 have a median life expectancy of another 19.5 years

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