Life Expectancy

What is Life Expectancy?

Life expectancy is an estimate of how long an individual is likely to live based on specific factors, like their current age, gender, and lifestyle choices. In life insurance, life expectancy is a major determinant of the cost of coverage.

How insurers use life expectancy

Life insurance companies specialize in risk calculation — and mitigation. A big way they do this is by factoring in an individual’s life expectancy before issuing them a life insurance policy.

When you apply for life insurance on yourself, the insurance provider gathers data about you. You might need to go in for a medical exam and fill out a questionnaire about things like your occupation, your exercise habits, and whether or not you smoke, for example.

The insurer then uses all of this data, alongside sophisticated algorithms and actuarial tables, to estimate your life expectancy.

The longer they expect you to live, the less you’ll need to pay for life insurance. The thinking goes that when you live longer, you’ll have more time to pay your life insurance premiums. That allows the insurer to recoup money before they have to pay out your death benefit when you pass away.

Life expectancy to determine premiums

In order for life insurance companies to stay profitable and continue coverage for their insureds, they need to bring in more money than they pay out in a specific period. Estimating life expectancy helps them do just that.

If they expect an individual to live for a while after they purchase coverage, they’ll put that person in a better rate class. A more preferential rating means that person will pay less for life insurance. That’s why younger people usually get cheaper life insurance.

If the insurer determines that the life expectancy for that individual isn’t very long, they will charge more for the life insurance premiums — or they may deny that individual coverage altogether.

Gender and life expectancy

While calculating your life expectancy is generally a nuanced process, there’s one area in which it’s pretty simple. Because women tend to live longer than men, life insurers bump up their life expectancy. And that means that women will usually pay less than men for life insurance, assuming all other factors (like health status, age, and lifestyle choices) are the same. The exception is the state of Montana, where all life insurance rates are unisex.

Get an instant online quote for life insurance.