How is the probability of death defined in insurance?

The probability of death in insurance is defined as the mortality rate for a given age group. Mortality rates are statistical measures reflecting the frequency of deaths within a specified population over a particular time frame, typically expressed as the number of deaths per 1,000 or 100,000 individuals. This measure is crucial for insurers as it helps them assess risk and determine premium rates.

Understanding mortality rates allows insurers to predict the likelihood of claims arising from death within various demographic segments, which is fundamental for establishing policy pricing and financial reserving. By analyzing historical data, actuaries can calculate the probability of death for different age groups, which informs underwriting decisions and the sustainability of life insurance products.

In contrast, while the number of deaths in a year provides useful raw data, it does not account for the population size or age distribution necessary for assessing the likelihood of death systematically. Life expectancy refers to the average number of years an individual is expected to live and is influenced by a wide range of factors, not just mortality rates. Expected years of disability relates to a different aspect of health risk and does not pertain specifically to mortality. Thus, focusing on the mortality rate for specific demographic groups presents the most relevant definition of the probability of death in the context of insurance