Yearly Probability Of Living

Published Oct 26, 2023

Definition of Yearly Probability of Living

The yearly probability of living refers to the likelihood that an individual will survive for another year. It is a measure of mortality risk that takes into account the age-specific death rates in a given population. This probability is often used for actuarial purposes, such as calculating life insurance premiums or estimating retirement benefits.

Example

Let’s consider a population of 1,000 individuals aged 65. Based on historical data and mortality rates, it is found that out of these 1,000 individuals, 900 are expected to survive to the age of 66, while 100 are expected to die before reaching that age. Therefore, the yearly probability of living from age 65 to 66 for this population is 0.9 or 90%.

It is important to note that the yearly probability of living can vary greatly depending on factors such as age, gender, socioeconomic status, and overall health. For example, a population of individuals in their 20s may have a much higher probability of living for another year compared to a population of individuals in their 80s.

Why Yearly Probability of Living Matters

The yearly probability of living is a crucial concept in the fields of actuarial science, insurance, and retirement planning. It helps insurance companies and pension funds estimate the future liabilities they may face and set appropriate premiums and benefit payments. Additionally, individuals can use this probability to assess their own life expectancy and make informed decisions about their financial planning, such as saving for retirement or purchasing life insurance coverage. Overall, understanding the yearly probability of living allows for more accurate risk assessment and financial decision-making.