COMPONENTS OF RISK

Components of Risk

·        As a general principle, insurance is only available for risks that are uncertain

·        It is the uncertainly about the timing of death that makes death insurable

·        Level of risk is determined by 2 criteria:

v The probability of certain event happening

v The extent of the event (severity), if it happens

·        The probability of certain event happening: the probability that a certain person will die within one  year is calculated by actuary from the past data collected and is made available as mortality table.

·        The mortality rate is a chance of dying at a specified age based on the proportion of deaths among a specific number of a sample population.

·        The probability of risk to life for individuals will differ on the basis their age, medical well being, family medical history, life style, job profile etc.

·        Life insurance companies determine the level of risk based on past data (claims experience).

·        If the past data indicates that the individual with certain age group are more prone to risk will be considered to be higher for the age group