Basic Insurance Terms – Actuarial Techniques Part 3

This article covers fundamental insurance equations and actuarial concepts used in the insurance industry.

The Fundamental Insurance Equation

The basic equation underlying insurance pricing is:

Premium = Expected Claims + Expenses + Profit Margin

Actuaries use statistical models to estimate expected claims based on historical data, mortality tables, and risk factors.

Key Actuarial Concepts

• Mortality Rate – The probability of death within a specific age group over a given period.
• Life Table – A statistical table showing the probability of a person at a given age dying before their next birthday.
• Present Value – The current worth of a future sum of money, discounted at an appropriate interest rate.
• Annuity – A series of equal payments made at regular intervals over a specified period.

Related: Life Insurance Basics | Asset Management Ratios