We face many risks in our lives on a daily basis: the risk of being in a car accident, the risk of a snow storm grounding our flights, the risk of a home burglary, just to name a few. While some of the risks are a minor nuisance and not of financial significance, others have a catastrophic effect on our finances. The purpose of insurance is to transfer some of the risk to an insurance company in exchange for a fee known as the premium.
Actuaries that work for the insurance company are highly educated professionals whose jobs are to calculate the premium so that they are profitable yet competitive with other insurance companies. Factors that affect premium include age, sex, health class, lifestyle, family history and even interest rates. All of these factors are used to develop a life table, which determines the mortality rate and therefore applicable premium for any individual. Similar tables are produced for critical illness and disability.
While these life tables are readily made available among insurers, consumers who want to know the odds of a tragedy occurring often have a difficult time finding them. Manulife has simplified this process by allowing you to play with their risk calculator, which determines for an individual or a couple their risk of death (1), disability (2) or critical illness (3) before the age of 65 based on their current age and smoking status.
| Risk, non-smoker | |||
|---|---|---|---|
| Age | Male | Female | Couple (same age) |
| 20 | Death: 7% Disability: 39% Critical illness: 27% Any of the above: 54% | Death: 5% Disability: 45% Critical illness: 20% Any of the above: 53% | Death: 12% Disability: 66% Critical illness: 42% Any of the above: 78% |
| 25 | Death: 7% Disability: 37% Critical illness: 27% Any of the above: 53% | Death: 5% Disability: 43% Critical illness: 20% Any of the above: 52% | Death: 12% Disability: 64% Critical illness: 42% Any of the above: 77% |
| 30 | Death: 7% Disability: 36% Critical illness: 27% Any of the above: 51% | Death: 5% Disability: 41% Critical illness: 19% Any of the above: 50% | Death: 12% Disability: 62% Critical illness: 41% Any of the above: 76% |
| 35 | Death: 6% Disability: 34% Critical illness: 26% Any of the above: 50% | Death: 4% Disability: 39% Critical illness: 19% Any of the above: 48% | Death: 10% Disability: 60% Critical illness: 40% Any of the above: 74% |
| 40 | Death: 6% Disability: 33% Critical illness: 26% Any of the above: 49% | Death: 4% Disability: 35% Critical illness: 18% Any of the above: 45% | Death: 10% Disability: 56% Critical illness: 39% Any of the above: 72% |
| 45 | Death: 5% Disability: 31% Critical illness: 24% Any of the above: 46% | Death: 4% Disability: 31% Critical illness: 17% Any of the above: 41% | Death: 9% Disability: 52% Critical illness: 37% Any of the above: 68% |
| 50 | Death: 4% Disability: 27% Critical illness: 23% Any of the above: 42% | Death: 3% Disability: 26% Critical illness: 15% Any of the above: 35% | Death: 7% Disability: 46% Critical illness: 35% Any of the above: 62% |
| Risk, non-smoker | |||
|---|---|---|---|
| Age | Male | Female | Couple (same age) |
| 20 | Death: 17% Disability: 39% Critical illness: 27% Any of the above: 57% | Death: 13% Disability: 45% Critical illness: 20% Any of the above: 56% | Death: 28% Disability: 66% Critical illness: 42% Any of the above: 81% |
| 25 | Death: 17% Disability: 37% Critical illness: 27% Any of the above: 56% | Death: 13% Disability: 43% Critical illness: 20% Any of the above: 55% | Death: 28% Disability: 64% Critical illness: 42% Any of the above: 80% |
| 30 | Death: 16% Disability: 36% Critical illness: 27% Any of the above: 55% | Death: 13% Disability: 41% Critical illness: 19% Any of the above: 53% | Death: 27% Disability: 62% Critical illness: 41% Any of the above: 79% |
| 35 | Death: 16% Disability: 34% Critical illness: 26% Any of the above: 54% | Death: 12% Disability: 39% Critical illness: 19% Any of the above: 51% | Death: 26% Disability: 60% Critical illness: 40% Any of the above: 77% |
| 40 | Death: 15% Disability: 33% Critical illness: 26% Any of the above: 53% | Death: 12% Disability: 35% Critical illness: 18% Any of the above: 48% | Death: 25% Disability: 56% Critical illness: 39% Any of the above: 76% |
| 45 | Death: 14% Disability: 31% Critical illness: 24% Any of the above: 50% | Death: 11% Disability: 31% Critical illness: 17% Any of the above: 45% | Death: 23% Disability: 52% Critical illness: 37% Any of the above: 73% |
| 50 | Death: 12% Disability: 27% Critical illness: 23% Any of the above: 46% | Death: 10% Disability: 26% Critical illness: 15% Any of the above: 39% | Death: 21% Disability: 46% Critical illness: 35% Any of the above: 67% |
What conclusions can you draw from the data? A few things stick out to us when looking at the data. First, the odds of developing a disability is greatest at any age, followed by critical illness, which is lagged by death. This isn’t too surprising given the prevalence of debilitating diseases and accidents that can prevent you from working during your peak earning years. Although life insurance usually takes priority over disability insurance in most households, a look at the data indicates that disability insurance is equally as important, if not more important.
The other thing, which is surprising, is that the risk of death is the only thing that changes between smoker and non-smoker. Because of the exhaustive research that has been conducted to conclude that smoking is a major risk factor for heart disease and cancer, we find it surprising that the risk of critical illness does not increase for a smoker.
The last thing we’ll mention is that men tend to have a lower probability of becoming disabled compared to women, while the opposite is true for the incidence of critical illness. This may surprise you since you usually associate dangerous activities and risk taking that results in disabilities with men. But the fact is most disabilities are caused by nervous or musculo-skeletal disorders, which represent almost three quarters of all claims.
Have these odds of tragedy affected your view of the need for life, disability and critical illness insurance for yourself or your partner? What explanation can you think of that supports the finding that the risk of critical illness doesn’t increase as a smoker?
1. Mortality probability based on the Canadian Institute of Actuaries’ CIA9704 gender and smoker distinct mortality tables.
2. Disability probability based on the 1985 Commissioner’s Individual Disability Table A gender distinct incidence tables for Occupation class 2A, 90 day waiting period.
3. Critical illness probability based on combined incidence rates for cancer (“New cases for ICD-03 primary sites of cancer: 2002-2007”) and the Heart and Stroke Foundation of Canada (“The Growing Burden of Heart Disease and Stroke in Canada, 2003”).
Image courtesy of jscreationzs / FreeDigitalPhotos.net
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