Question 71

The theory of probability is applied to life insurance through the use of mortality tables.

Mortality tables are essential in life insurance as they provide statistical data on the likelihood of death at various ages, helping insurers assess risk and set premiums accordingly.

A) morbidity tables.

Morbidity tables provide information on the incidence of illness or disability within a population, which is relevant for health insurance but not directly applicable to life insurance. Therefore, while they are important for understanding health-related risks, they do not reflect the probability of death.

B) mortality tables.

Mortality tables are specifically designed to represent probabilities of death among different age groups and demographics. They form the backbone of life insurance underwriting, allowing insurers to predict life expectancy and calculate premiums based on the risk of death.

C) the needs approach.

The needs approach is a method of determining life insurance coverage based on the financial needs of the insured's beneficiaries. While it is a useful strategy for assessing coverage amounts, it does not utilize probability theory in the same way that mortality tables do.

D) the human life value approach.

The human life value approach estimates the economic value of an individual’s life based on their earning potential and contributions to dependents. While this approach is valuable for assessing insurance needs, it does not apply the statistical methods of probability that are inherent in mortality tables.

Conclusion

Mortality tables are crucial in applying the theory of probability to life insurance, as they provide the statistical foundation needed for understanding and predicting life expectancy. In contrast, morbidity tables, the needs approach, and the human life value approach, while relevant in their contexts, do not utilize the principles of probability in the same direct manner as mortality tables do. This makes option B the definitive correct answer.