Understanding Attained Age: A Comprehensive Guide

One of the terms that often arises when talking about insurance is attained age. It is an important concept that is used in different types of insurances, deciding premiums, benefits and other policy holding factors. In this comprehensive guide, we will discuss what attained age is, how it is used differently in different insurance terminologies and how it affects the policyholder. Be it an insurance professional, a policyholder or a person merely learning about insurance terms and structures, this article provides detailed information about attained age.

What is Attained Age?

A person’s attained age is the age to which that person has achieved at a given time. It is an important determinant of premiums in both health and life insurance contracts. Although age is, of course, a continuous variable, in insurance contexts ‘age’ specifically refers to a specific attained whole number of years, such as ‘10 years old’ or ‘43 years and one month old’.

Attained age at a given time differs from an individual’s age at the time the policy was purchased (the so-called issue age). For example, when I bought a life-insurance contract three years ago today, my issue age was 45 because my attained age at that time was 45 (but I was 42 when I bought the contract). By contrast, as I write this, my attained age is 48.

This is why insurers vary premiums and benefits based on attained age (they carry forward the factors influencing the determination of [such] benefits) rather than issue age. Insurance premiums and benefits must be based on an actuarially sound determination of the policyholder’s current risk profile.

The Importance of Attained Age in Insurance

Attained age is a fundamental element in the insurance industry for several reasons:

Premium Calculation As the policyholders get older, the risk of their falling ill or dying increases. Insurers use attained age to accommodate for this growing risk in premiums. This way, the total sum of premiums that the company collects at any given time corresponds to the anticipated total sum of claims over a set period of time.

Annual Renewal Policies: In annual renewable policies such as health insurance, price is determined by attained age, and tends to rise as borrowers get older. For example, in the US, the premium of an annual renewable term insurance policy is closely linked to age.

Benefit Adjustments:LTI (long-term income benefit) and other policies from some insurers, especially lifetime cover, also provide for benefit adjustments on attained ages. Sometimes, such no claim bonus reductions happen at regular intervals in the basic policy in addition to increments. These adjustments lead to a reduction in financial cover to ensure viability for the insurer.

Attained Age in Different Types of Insurance

Life Insurance

Attained age is important in life insurance particularly for term life insurance and whole life insurance.

Term Life Insurance: For term life policies, premiums are level for only the term period of the policy. At renewal, premiums are recalculated using the insured’s attained age. This usually results in substantial increases in premiums, especially for the older policy holder.

For whole life policies – policies that cover the insured from birth to date of death – attained age is factored into premium calculations too. But whereas term premiums are variable, whole life premiums are level for life. In the first calculation, the insurer is playing it safe by recognising the likely rise in risk as the policyholder gets older.

Health Insurance

In health insurance, attained age is a key factor in premium adjustments.

Individual Health Insurance: PREMIUMS for individual policies are annually adjusted to reflect the policyholders’ attained age. The higher the level of attained age a person reaches, the higher their probability of utilising medical care. Therefore, it follows that the more medical care is required, the higher the premium.

Medicare Supplement Insurance (Medigap): Many Medigap policies (which supplement insurance provided by Medicare) base premiums on attained age. This means that the premiums increase as the policyholder grows older, and thus costs increase because it is more expensive to be old than young.

Annuities

In annuities, attained age affects both the accumulation phase and the payout phase.

Accumulation Phase: The accumulation phase might be subject to persistent effects of attained age, especially in variable and indexed annuities, because older individual consumers might persist in investing in a way that is more or less risky than a young person might.

Payout Phase: Payout phase heeds attained age in putting a dollar amount on periodic payments. Immediate annuities, for example, calculate the payout according to the age of the holder at the time of the purchase, meaning older annuitants oftentimes receive higher payouts because they have a shorter life expectancy.

How Attained Age Affects Premiums

The calculation of attained-age premiums is based on actuarial science, which makes mortality assumptions on risk. FYI, here is how they calculate your risk:

Risk Assessment: For every policyholder, the insurer computes the risk of having to pay based on the age they have attained so far. They use statistics on mortality rates, morbidity rates, and health expenditure for people in different age groups.

Risk Review: After determining the risk, insurers raise the premiums so that they’re sufficient to pay the expected claims These premium increases are applied across the policy base — creating the traditional habit of higher premiums for older policyholders.

Actuarial Tables: Insurers need to know how long a customer is likely to live, and what kinds of health problems are likely to afflict each age cohort. So each company will use tables of statistics on different age groups that record probabilities of living past certain ages, or of developing certain health problems, compiled from data on large numbers of individuals in each category. These tables are reworked regularly to reflect changes to demographics and epidemiology.

Strategies for Managing Attained Age Premium Increases

And because premiums under level-premiums grow with attained age – for example, doubling after 35 years – the cost can be controlled in several ways:

Premium comparisons: examine your insurance policies on a regular basis to find a company with lower rates or better coverage. If you haven’t experienced illness, your risk might be lowered, allowing you to switch policies.

Good Health: Maintaining a healthy lifestyle can minimise the chances of hefty premium hikes. Many insurers also view insurance applicants with less risky health profiles more favourably and charge them a lower premium.

Premium Policy Adjustments: Reduce premiums by lowering your policy coverage – for example, increase deductibles or reduce benefit levels, but keep in mind that you’re sacrificing protection.

Long-term planning: You know that your premiums will increase in the future when you are older. Put aside money for it.

Attained Age vs. Issue Age

Attained age refers to the person’s actual age. Issue age refers to their age at the time of making the policy. Issue age is the most commonly used calculation for life insurance policies. It’s important to remember that these two concepts are different:

Issue Age: The insured’s age when the policy is purchased. Issue age policies have premiums that are set initially and then typically stay level (although the premiums will be higher than for attained age policies initially).

Attained Age: The attained age is the age of the person insured taking into account any adjustments for age since the policy was issued. Depending on the type of policy, the attained age might trigger premium increases over time. This makes the premium lower at the outset but makes it much higher as the policyholder gets older.

Attained Age in Medicare Supplement Insurance

Here is a simplified explanation of how attained-age premiums for Medicare Supplement Insurance (colloquially called Medigap) are calculated: Prices increase with age as one stays in the same plan.

The premium for one of these policies will increase each year as he gets older because Medigap premiums are calculated based on the policyholder’s age at the time the insurer offers the policy and annually thereafter based on attained (not issue) age. Premium Calculation: Premiums for a Medigap policy will increase each year as Mr Smith gets older.

Cost Differential: There might be a slight decrease in premiums early on with attained age-rating, but overall a policy may be more costly than issue age-rated due to annual increases. The cost now is just one factor to consider when selecting a type of Medigap policy.

Policy Selection: Comparing the long-term costs of attained age-rated and issue age-rated policies will determine which Medigap product you choose. Consider your current health status and future financial situation to determine which option you should pick.

The Role of Attained Age in Long-Term Care Insurance

Another form of insurance affected by the attained age principle is long-term care insurance (LTC). Here’s a little more detail:

Premium Adjustment: LTC insurance premiums increase with age to reflect that the likelihood of needing long-term care services increases with old age. Once again, this is to make sure that the premium is adequately high to pay for the likely cost of care.

Policy Adjustments: In some cases, the benefits provided by an LTC policy will change in light of attained age. Inflation protection is one example, which guarantees that the benefits grow to keep pace with the cost of care.

Policy Renewal: As with most types of insurance, your LTC policy can be written to provide a particular renewal option, usually with ‘attained age adjustments’ in the premium determination that will predict premium increases in the future.

Impact of Attained Age on Group Insurance Policies

Premiums for group insurance, often offered by employers, also take attained age into account. Here’s how attained age works with group insurance.

Premium Calculation: The premiums for group insurance are generally calculated according to the average age of the insured in one group. When the average age is older, the premium will increase. This is because the probability of claims from the aged group is higher.

Reduction in Benefits: Benefits under some group insurance plans may be adjusted to the attained age of the insured. For example, the life insurance benefits under employee benefit plans may be reduced as the employee grows old.

Cost Sharing: In group insurance (typically employer-sponsored plans) premiums are often shared, with the employer contributing a portion for the employees they cover. Learning how age affects the cost can help employers as well as employees better manage those insurance costs.

Attained Age and Actuarial Science

Actuarial science underpins the use of attained age for insurance purposes. Actuaries work with complex mathematical models and statistical data to quantify risk, in order to set premiums. Here’s how it works.

Data collection: actuaries collect large bodies of data on mortality, morbidity, and healthcare costs broken down by age Since premiums are based on actuarial tables, the foundation for that calculation is determined by data on mortality and morbidity among different age groups.

Risk Assessment: actuaries use actuarial tables to evaluate risk for an age group in order for an insurer to decide what claim is likely to be made and what premium is required to support it.

Risk assessment: Actuaries convert this risk assessment into suitable and sustainable premiums, enabling you as a policyholder to commence a chosen cover for a specified period. Premium calculation: the premium collected is sufficient to cover the expected claims over the policy period.

Future Trends in Attained Age and Insurance

These relate to several trends that might shape insurance pricing policy as attained age becomes a less satisfactory basis for calculating premiums.

The Impact of Healthcare Advances: Advances in healthcare (such as new drugs, medical technologies, etc) might lead to longer life expectancies and better health over time. These changes could impact the way the auxiliary variable attained age is used in premium calculations, which would tend to make premiums more stable for older policyholders.

Personalised insurance: If insurers use big data and artificial intelligence technologies to calculate premiums more precisely, attained age could become one of multiple bases for risk-based premium calculation.

Regulatory Changes: Changes to insurance regulations could also alter how attained age is used for premium calculation. Insurers could face new laws or guidelines which require them to be more transparent in their premium calculation practices, or limit increases in premiums for older individuals.

Conclusion

You won’t get anywhere in the insurance business without understanding what attained age is, how it will impact your premium levels if you buy a policy, how it will affect whether the policy is renewed when it comes up for renewal, and how it will affect benefits at different ages. Knowing how extreme your attained age is can help you plan ahead and manage the rising cost of insurance (especially health insurance) as you get older. If you are considering buying a new policy, you should understand the role that attained age plays in insurance. If you have policies in place already, you might have to readjust your plan as you get older, or you could get caught off guard.

Staying on top of the news and making ongoing efforts to find the best coverage (at a price you can still afford) throughout your lifetime will help, as will keeping an eye on your industry’s ongoing evolution by studying the latest trends and advancements in the field.