ALTAM: Multiple-state values require occupancy and transitions
In a health or life model, a benefit may be paid for occupying a state, entering a state or dying from a state. Those payments require different probabilities. A state diagram with labelled cash flows prevents a transition benefit from being treated as an occupancy benefit.
Worked example or practice scenario
In a one-year toy model starting healthy, probabilities at year end are .90 healthy, .08 disabled and .02 dead. A benefit of 500 paid at year end only to disabled lives has expected undiscounted payment 40. A death payment is a separate term.
Try this next
Add a benefit payable immediately on entering disability. Explain why the end-of-year disabled probability may omit people who entered disability and recovered within the year. You now need transition timing, not just the final state distribution.
Reading sources
ActNet editorial guide · October 1, 2026 · Original illustrative examples.