Age Basis Definition
The Dictionary of Insurance Terms and Definitions
The age basis for a given insured is the age that the life insurance company uses in its calculation of mortality risk for any policy on that individual. There are two ways to determine age basis; each insurance company decides for itself which method to use in its calculations:
- Nearest birthday: for the purposes of mortality risk, the insured's age advances six months prior to the insured's actual birthday.
- Last birthday: the age basis is equal to the insured's age.
Age is an important factor in determining appropriate life insurance rates for an individual. As people grow older, their risk of death increases manifold. Moreover, their risks of death from certain causes increase at different rates.
For instance, if a life insurance company offers a policy which excludes death from hazardous activities, the insurer should consider the age basis of the insured. If the insured is very old, it is unlikely that he or she indulges in hazardous activities, so the risk of death from hazardous activities might be approximately nil. If the insured is a teenager, however, he or she probably can't get enough dangerous activities, so the risk of death from said cause is appreciably higher.
