Yearly Probability of Living

Yearly probability of living is an indicator to determine the probability that an individual of a particular age and gender will live another year. The yearly probability of living is often applied in the field of insurance, in particular in life insurance. The older a person is, the lower his index of the yearly probability of living and, accordingly, the higher the amount of premiums charged by the insurance company. Thus, the yearly probability of living for a 65-year-old man is 98.3%, while the yearly probability of living for an 80-year-old man is lower and equal to 93.6%. The yearly probability of living is calculated by using a mortality table. 

More about Yearly Probability of Living

To maximize profits, insurance companies should use all available sources to measure the probability of an insured event. Thus, the most important type of data for life insurance policies is considered to be mortality tables, which are often called life tables. The life table has been a key instrument of actuaries for about 200 years and is still the basis for calculating life expectancy. 

Since these sources of information clearly reflect the mortality rate at each age (a number of deaths per thousand), through these tables, insurance companies determine the yearly probability of living in relation to their policyowners and establish a certain level of insurance premiums.

The mortality table figures are calculated by dividing the number of persons living at the end of the current year by the number of persons who lived at the beginning of this year.

The statistical data taken into account in a mortality table may be broad and cover the population of an entire country, but may also reflect data for a specific population group, for example, persons aged 50 and over or persons with some pre-existing diseases. Life insurance products intended for the elderly will be calculated with the application of the indicator of the yearly probability of living for a specific age group.

The life table information, in particular the yearly probability of living, makes one turn to thinking about one's own mortality, so many people find it difficult to accept this statistic.

When creating a graph, the yearly probability of living systematically decreases with age, 

tending to 0% and ultimately reaching this level. Nevertheless, these indicators are critical in evaluating risk. While insurance companies use the data to find the probability of insured events and set their premiums, policyholders can also assess whether their insurance rate is justified.

Example of Yearly Probability of Living

There are also statistically significant factors correlated with life expectancies that used to calculate this indicator, just a few: nationality, gender, ethnicity, and economic status.

According to the World Health Organization (WHO), women, on average, live longer than men around the world. Their life expectancy is about 7% higher than that of men. On average, the female sex lives up to 75 years, while the male only up to 70. However, it is worth remembering that there is a difference in life expectancy between nations.

The life expectancy of Canadians is just below 82 years, while life expectancy in the US in 2021 was 76.6 years. The differences between the yearly probability of living in countries can be very significant, as for example, the same figure for people from the Central African Republic is only 49.3 years.