Explain "mortality tables" in life insurance.

Mortality tables are essential tools in the life insurance industry because they provide statistical information about the life expectancy of individuals and the associated probabilities of death at different ages. These tables are constructed using historical data on death rates from specific demographics and populations, allowing insurers to assess the risk of policyholders dying within a given timeframe.

The significance of mortality tables lies in their ability to inform both life expectancy calculations and premium determination based on the risk involved. By analyzing the likelihood that a policyholder will live a certain number of years, insurers can set appropriate premiums that reflect this risk. For instance, if the table indicates that individuals of a certain age have a significantly higher death rate, the insurer may choose to charge higher premiums for coverage provided to those individuals.

This thorough analysis of risk and longevity makes mortality tables a fundamental aspect of life insurance underwriting, helping insurers maintain financial stability while also providing coverage to policyholders in a fair and informed manner.