Underlying Mortality Assumption

AAA

DEFINITION of 'Underlying Mortality Assumption'

Projections of expected death rates used by actuaries to estimate insurance premiums and pension obligations. Underlying mortality assumptions are based on mortality tables, which are statistical tables of expected annual mortality rates. Because of the critical importance of the underlying mortality assumption, actuaries have to follow guidelines set by pension and insurance regulators in deciding on an appropriate assumption.


Also called the mortality assumption.

INVESTOPEDIA EXPLAINS 'Underlying Mortality Assumption'

The underlying mortality assumption is a key variable in estimating life expectancies, which in turn determines the cost of insurance for an insurer and the long-term obligations of a pension fund. If the underlying mortality assumption is too low, a life insurer may underestimate the actual cost of insurance and may have to pay out more death benefit claims than it had forecast. Conversely, if the underlying mortality assumption is too high, the actuary may underestimate life expectancies of the pension-plan members and hence the long-term obligations of the pension fund.

RELATED TERMS
  1. Mortality Table

    A table that shows the rate of deaths occurring in a defined ...
  2. Actuarial Risk

    The risk that the assumptions that actuaries implement into a ...
  3. Actuarial Analysis

    The examination of risk by a highly educated and certified professional ...
  4. Longevity Risk

    The risk to which a pension fund or life insurance company could ...
  5. Life Expectancy

    1. The age until which a person is expected to live. 2. The ...
  6. Exposure Trigger

    An event that causes a policyholder’s insurance coverage to kick ...
RELATED FAQS
  1. What is a "linear" exposure in Value at Risk (VaR) calculation?

    A linear exposure in the value-at-risk, or VaR, calculation is represented by positions in stocks, bonds, commodities or ... Read Full Answer >>
  2. What are the restrictions for naming a given individual as my contingent beneficiary?

    Life insurance is an important part of estate planning. It allows you to ensure that you can financially take care of the ... Read Full Answer >>
  3. What is the criteria for a simple random sample?

    Simple random sampling is the most basic form of sampling and can be a component of more precise, more complex sampling methods. ... Read Full Answer >>
  4. What are some examples of ways that sensitivity analysis can be used?

    Sensitivity analysis is an analysis method that is used to identify how much variations in the input values for a given variable ... Read Full Answer >>
  5. How is the 80-20 rule (Pareto's Principle) used in macroeconomics?

    The 80-20 rule was first used in macroeconomics to describe the distribution of wealth in Italy in the early 20th century, ... Read Full Answer >>
  6. What debt/equity ratio is typical for companies in the insurance sector?

    The debt-to-equity ratio is calculated by dividing total liabilities by total equity, and it is used to measure leverage. ... Read Full Answer >>
Related Articles
  1. Home & Auto

    Insure Your Future With A Career As An Actuary

    If you've got excellent math skills, they can add up to a lucrative career as an actuary.
  2. Retirement

    The Investing Risk Of Underfunded Pension Plans

    Determine the risk to a company's EPS and financial condition resulting from an underfunded pension plan.
  3. Active Trading Fundamentals

    Operational Risk: A Must-Know For Investors

    This type of risk is often overlooked, but it can mean the downfall of a company - and its investors.
  4. Budgeting

    The Demise Of The Defined-Benefit Plan

    Experts are making bleak predictions for your post-work years. Be prepared and plan for your future.
  5. Investing

    How To Evaluate Pension Risk By Analyzing Annual Costs

    Learn how to assess whether a company's pension plan is posing more risks than what the footnotes indicate.
  6. Professionals

    Indexed Universal Life Policies: Watch These Risks

    By properly vetting indexed universal life policies, advisors and savers can avoid contracts that could prove overly costly over the long run.
  7. Fundamental Analysis

    Calculating the Herfindahl-Hirschman Index (HHI)

    The Herfindhal-Hirschman Index, (HHI) is a measure of market concentration and competition among market participants.
  8. Fundamental Analysis

    Calculating Net Interest Margin

    Net interest margin is a metric used to measure the effectiveness of a company’s investment decisions, particularly financial institutions.
  9. Professionals

    An Advisor's Guide to Prof. Liability Insurance

    A guide to what financial advisors need to know about professional liability insurance.
  10. Insurance

    India's Two-Child Policy

    As of 2014, 11 Indian states have passed laws to restrict Indian citizens from having no more than two children.

You May Also Like

Hot Definitions
  1. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  2. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  3. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  4. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
  5. Rule Of 70

    A way to estimate the number of years it takes for a certain variable to double. The rule of 70 states that in order to estimate ...
  6. Risk Premium

    The return in excess of the risk-free rate of return that an investment is expected to yield. An asset's risk premium is ...
Trading Center