## Actuarial Age Details

Actuarial age is the estimated life expectancy of an insured person based on statistical and mathematical analysis. The term is almost synonymous with "life expectancy," but this life expectancy is reached with actuarial science methods and calculations. One's actuarial age directly affects the process and decision-making of purchasing insurance policies. Since this is the case, a person's actuarial age is the first order of business when purchasing insurance. After the actuary calculates and analyzes the facts, the insurance will offer different premiums specific to the results.

An insurance company will not use the person's actual age when calculating actuarial age but the age closest to the birthday. Meaning that if your birthday is within six months, the insurance company will use your next birthday as a part of the calculation. This process is vital since the price of the policy is directly affected by it. Using the Law of Large Numbers, a theory of probability, actuaries can predict within a small margin of error the number of claims that have to be paid in a month.

Actuarial science is used in a variety of ways for plenty of different fields that benefit from it. Aside from measuring one's life expectancy, it is also used to assess financial risk. With statistical mathematics, actuarial science can predict the financial implications of future events and help insurance companies foretell the funds needed for an unexpected event.

## Actuarial Age Example

Many factors define one's life expectancy. The SSA (Social Security Administration) actually has a table that shows the life expectancy of people of all ages, including the probability of death. For example, a man that is 45 years old is expected to live 34.06 more years. A woman of 33 is expected to live 49.10 more years. The age and life expectancy inversely increase and decrease depending on the age.

Actuarial age isn't as simple as that, however, since it factors many variables into the equation. These variables can be where the person lives, blood pressure, cholesterol, family medical history, and even participation in risky hobbies such as skydiving, motorcycle riding, etc. The most significant factors an insurance company takes into account are one's current health condition, whether or not they smoke, age, and gender. If a person wants to take out an insurance policy and has a very low actuarial age, their premium will most likely be very high. On the contrary, if someone has a very high and long actuarial age, the policy will be more affordable.

A client assigned the lowest risk class—they have a high actuarial age—will have Preferred Plus or Elite premiums. A man in his 40's is at risk of paying a rate that is 8% higher than usual. It can even go up to more than 12% for someone in their 50's. A 25-year old female who bought a \$750,000 coverage will pay a rate of \$21.18. A 50-year old would pay \$54.39 for the same coverage.