Life Expectancy Reports provide a TOLI trustee with a systematic estimation of an insured’s remaining life. When making policy decisions, the addition of an LE report to a TOLI file helps to ensure a prudent decision. It is based on all the remaining information being available for review.
Life Expectancy reports are an integral part of the life settlement process. Insurers use them when a policy is being priced for sale. By determining an expected lifespan and premium costs until a benefit will be paid, the investor can calculate a fair purchase price for a policy. That price will enable the investor to make a profit on the investment. After a policy is sold, insurers periodically run LE reports on the insureds to value a life insurance portfolio.
Life insurance companies and other organizations use LE reports in various ways. The Life Settlement market relies heavily on this type of data to ensure the health of their portfolios. Let’s take a look at how insurers create life expectancy estimates, and what they include.
How Life Expectancy Estimates are Calculated
Life Expectancy (LE) estimates take a number of factors into account. TwentyFirst, a life expectancy and longevity data company owned by ITM’s parent company Longevity Holdings, uses their own proprietary system and underwriting manual to produce a life expectancy estimate. Underwriters review medical records and input conditions and other factors (e.g. medical conditions, family history, BMI, lifestyle factors) relevant to the insured into their system. The system calculates the life expectancy based on the mortality multiplier for the insured (which is derived from the credits and debits we assign to the various factors the underwriters input in the system).
The underwriting approach is rules-based. It is designed to limit underwriter subjectivity and provide consistent, reproducible results.
The mortality tables are based entirely on their own experience and include continuous mortality improvement factors.
What a Typical Life Expectancy Estimate Includes
When TwentyFirst issues a life expectancy estimate, the report will include:
(1) Mean and median life expectancy
(2) First year multiplier and full mortality curve,
(3) The top 3 conditions of the insured that they identified in the medical records having the most impact on the estimate (either debits or credits). Other conditions with less impact along with those that may have no impact, are grouped together under body systems.
A sample estimate can be found here: (Sample Life Expectancy Estimate).
Life expectancy reports and TOLI are a great tool to aid in making decisions relating to policy management and life settlements. Other areas where a life expectancy estimate may assist in making decisions include:
- When to start receiving retirement benefits
- Litigation of cases where life expectancy is relevant
- How to invest your money – financial planning
For more information about Life Expectancy Estimates and how they are calculated, check out Chapter 15 of TOLI Handbook which you can download for free at www.TOLIHandbook.com.