Writing Life Insurance At Extreme Older Ages
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The market for older-age fully underwritten life insurance has expanded in recent years to the point that insurance companies often are writing fully underwritten life insurance to age 90.
Do the issuing companies have a good understanding of the mortality risk they are accepting when selling large policies to insureds at these extreme older ages? This article explores that question.
Over 20 years ago, few life policies were issued to insureds above age 65. With the growth that has occurred in the "final expense" market in recent years, however, many policies now are being issued to insureds above 65. These final expense life policies generally are written with face amounts of $5,000 to $30,000, and they use a simplified issue application with few underwriting questions.
Also, about 20 years ago, growth in "pre-need" insurance began. These policies generally have low face amounts, averaging about $5,000, and are issued on either a simplified issue basis or a guaranteed issue basis. Many pre-need insurance policies have been written in the last 20 years, generally on insureds between the ages of 65 and 90.
Because the final expense and pre-need policies have been around for some time, insurers have a pretty good basis for setting rates for the policies. They can predict within a fairly narrow range what profitability to expect from this business.
This is not true with fully underwritten business, however, especially for very large policies (over $1 million face amount). Only recently has the market for fully written life at ages over 65 taken off. This has not provided enough time for actuaries to gather mortality experience at these higher ages in order to price the products accurately.
A few studies have been published in recent years concerning this, but the data has been sparse, especially at issue ages over 80. Therefore, without good mortality data, the actuary is left to estimate expected deaths to determine premium rates at these older ages. (This explains why sessions are crowded at actuarial meetings that discuss underwritten, older-age mortality.)
Table 1 shows the significance of the mortality assumption for older-age policies. The representative mortality rates are compared for a blended male and female, issue age 80, for policy durations 1, 5 and 10. Rates are shown assuming guaranteed issue, simplified issue and fully underwritten policy. The rate differences are significant.
