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
