Actuary Definition
The Dictionary of Insurance Terms and Definitions
Life insurance companies employ mathematicians called actuaries to calculate how the insurer should design policies and rate classes in an affordable manner. Remember that the insurer wants to offer the lowest prices possible so that its business will be more attractive than that of its competitors.
Part of the actuaries' job is to compile mortality tables (though most of their calculations are based on mortality tables published by a third-party) and look for trends that divide the human population into demographic groups that will determine their life insurance rates.
For example, actuaries observe that smokers tend to die earlier than non-smokers, so they determine a formula for calculating smokers' life insurance rates, distinct from the formula used to calculate non-smokers' rates. This may be disappointing to smokers, but an actuary's goal is to group people with similar levels of risk together so that they can share their risk evenly with one another.
Your age, sex, height, weight, tobacco use, and health class each put you into a demographic group. The combination of your demographics points to a single life insurance rate. When you apply for life insurance quotes or coverage, it is the actuaries' formulae that enable the insurer to calculate the right rate for you.
Actuaries also calculate reserves and dividends.
