MORTALITY FACTOR

• The Actuary has a number of different mortality tables and must decide which one to use and how to interpret the data to project the future most accurately for the particular type of contract being proposed.
• The following diagram illustrates the natural premium system and from it can be seen that the chance of dying (apart from early childhood) grows slowly in the early years and increases with greater rapidity the older one becomes.
• The effect of this under a 'natural premium' scheme (where a policy each year) is that the premium would steadily increase as age rises and become prohibitively high in later years. As a result policyholders would stop paying premiums and the policies would lapse just when they were most needed. For this reason the 'natural premium' system has been almost completely abandoned. In its place the 'level premium' system has been evolved.