YouTube Review: Life Expectancy
Life Expectancy
Life expectancy is the single most influential factor that insurance companies use to determine life insurance premiums. Understanding how insurance companies use the concept of life expectancy – and how it is calculated for the insured – can help you decide when to purchase a policy, how to calculate the future potential value of your policy, and what to consider when choosing an annuity payout option.
Life Expectancy: The Hard Numbers
Life expectancy is defined as the age to which a person is expected to live. It can also be described as the remaining number of years a person is expected to live, based on tables issued by the Internal Revenue Service (IRS).1
There are several factors that affect your life expectancy; the two single most important being when you were born and your gender. Additional factors that can influence your life expectancy are:
Your race
Personal medical conditions
Family medical history
You can view the federal government's data on U.S. life expectancy on the National Center for Health Statistic's website and the Social Security Administration's Actuarial Period Life Table.
It is important to note that life expectancy changes over time. That's because as you age, actuaries use complex formulas that factor out people who are younger than you but who have died. As you continue to age past mid-life, you outlive an increasing number of people who are younger than you, so your life expectancy actually increases. In other words, the older you get (past a certain age), the older you are likely to get.
It is important to know your life expectancy—not only to understand how your life insurance company arrives at your premium cost, but also to make informed decisions about your annuity payout options. Two key determining factors that affect your choice of annuity are whether you want payments to continue to a beneficiary after your death, and how long you expect to live. A period certain annuity may be ideal in some cases while one with survivor options may be more suitable in other cases.