Life Insurance Could Be Cheaper With Higher Mortality Rates

Added April 27, 2004 by WGN-TV Show Notes

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Summary: Since the mid-1800s, life insurance companies have been predicting that Americans will die by the age of 100, or at least that's the age where the mortality tables stopped. But according to the census, there are more than 50,000 centenarians in the United States and life insurance companies aren't expecting us to die anytime soon. How does this affect you and your life insurance?

Going to live to be 100? You're not alone. Insurance mortality rates are rising.

The oldest living woman in the world is now 114, but she's not alone. According to the census, there are more than 50,000 centenarians in the United States and the number is growing.

Since the mid-1800s, life insurance companies have been predicting that Americans will die by the age of 100 or at least that's the age where the mortality tables stopped.

But with more Americans living past the age of 100, life insurance companies have revised their mortality tables for just the fourth time since 1858 and extended their definition of ripe old age to 120. How does this affect you?

Life insurance mortality tables predict how likely it is that you'll die within a year are quite low. In fact, they're less than 1 percent. If you're 60, there's a 1 percent chance you'll be gone in a year. But if you're 90 and make, there's an 18.8 percent chance you'll die within a year.

There are separate mortality tables for men and women and women are expected to live longer. So if you're 90 and male, there's that 18.8 percent chance you'll die in a year. But women who live to be 90 have only a 12.2 percent chance that they'll die within a year.

There are two benefits to setting the new end year at 120. First, it could make it a lot cheaper to buy life insurance because insurers expect us to live longer and need to keep less cash in reserves to pay beneficiaries. Second, it could help those people who hold whole life policies avoid paying taxes on the policies before they die. Here's how that works.

Whole life policies also have a cash value. When policyholders lived past 100, when the old mortality table ended, insurers were required to cash out the policies and return the investment proceeds. Under a 1983 law, those payouts are taxed. By lengthening the mortality tables to 120, centenarians will avoid paying taxes on this cash, which will then flow to their estate.

The funny thing about these new mortality tables is if you live to 101, the Society of Actuaries, which created the tables, says that men have only a 36.3 percent change of dying within a year and for women that falls to just 28 percent. So sooner, rather than later, these tables may need to be revised again.

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