How is mortality calculated according to insurance principles?

Mortality in insurance is calculated using a large risk pool of people over a significant period of time because this approach allows insurers to obtain a more accurate and reliable representation of life expectancy and mortality rates. By analyzing a diverse and extensive population, actuaries can identify patterns and trends in death rates that reflect the broad characteristics of the insured group.

Using a large risk pool enhances the predictability of the outcomes since individual variations, such as health status, age, lifestyle, and environmental factors, tend to average out within the larger dataset. This statistical principle is foundational in life insurance and health insurance calculations, helping insurers to set premiums appropriately and manage the financial risk associated with life events.

In contrast, relying on a small risk pool or just yearly changes would introduce significant variability that could lead to inaccurate projections, while focusing solely on state-specific data might not account for regional variations in health and mortality that can impact broader trends. Hence, utilizing a large and comprehensive set of data over time is key to sound mortality calculations in insurance.