Abstract
Probability and statistics play an important role in the insurance industry. The companies that want to insure individuals against fire, death, or automobile accidents use probability and statistics to determine their premiums. To determine the premiums, the company estimate the probability that it will have to pay off on each policy it sells. This chapter illustrate how this is done in the field of life insurance. The life insurance companies have compiled statistics, called mortality tables, which they use to determine the probability that a policyholder will die while the insurance policy is in effect. The mortality tables are constructed by selecting a large sample of individuals and recording how many deaths occur among individuals in the sample at each age. The mortality tables are constantly revised to reflect changes in medical technology, health standards, and environmental conditions. There are many different mortality tables available, and each insurance company tries to pick a mortality table based on the individuals whose characteristics closely match those of its policyholders.
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