What do insurance companies use mortality rates for?

Insurance companies utilize mortality rates primarily to forecast premiums and policy costs. Mortality rates indicate the likelihood of death within specific age groups or populations, allowing insurers to predict how many policyholders will likely pass away within a certain period. This forecasting is crucial because it directly impacts the overall risk that the insurance company takes on with its policies.

By understanding mortality rates, insurers can calculate the appropriate premiums that need to be charged to ensure that they can cover claims and remain profitable. This involves estimating the expected number of claims that will be paid out based on the probability of death for insured individuals. Consequently, accurate mortality data is essential for setting prices for life insurance policies, which can vary significantly depending on the assessed level of risk posed by the insured population.

In this context, the use of mortality rates for evaluating claims and payouts is not the main function, as claims are based on actual events rather than predictive data. Setting retirement age limits for policyholders and negotiating agreements with healthcare providers are also unrelated to the primary role of mortality rates in determining premiums and policy costs.