Underlying Mortality Assumption

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.

BREAKING DOWN '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. Select Mortality Table

    A mortality table which outlines life contingency statistics ...
  2. Ultimate Mortality Table

    A mortality table that lists the death rates of insured persons ...
  3. Valuation Mortality Table

    A statistical chart that is used by insurance companies to calculate ...
  4. Aggregate Mortality Table

    Data on the death rate of everyone who has purchased life insurance, ...
  5. American Experience Table

    A set of data, presented in table format, showing when Americans ...
  6. Mortality Table

    A table that shows the rate of deaths occurring in a defined ...
Related Articles
  1. Insurance

    Extreme Mortality Bonds: High Risk and High Reward

    Insurance companies issue extreme mortality bonds to cover their losses in the event of a large-scale disaster. Here's a look into these high-risk, high-reward bonds.
  2. Insurance

    Calculating Yearly Probability of Dying

    The yearly probability of dying is a figure that predicts annual death rates for a population.
  3. Personal Finance

    "Mortal Kombat"

    Even non-gamers can enjoy these movies which is evident from their massive success. As long as video games keep producing entertaining storylines, Hollywood will continue to convert the excitement ...
  4. Retirement

    A Primer On Defined-Benefit Pension Plans

    Most of us will rely on a pension plan in the future, so it's best to know the details of the various plans before signing up.
  5. Professionals

    Career Advice: Accounting Vs. Actuary

    Read about what life is like as an actuary or as an accountant, how the two careers are different and how to decide which is best for you.
  6. Professionals

    Career Advice: Financial Analyst Vs. Actuary

    Read an in-depth comparison between financial analysts and actuaries, what it's like to work as each and how to determine which is best for you.
  7. Professionals

    Accounting For Long-Term Liabilities

    CFA Level 1 - Accounting For Long-Term Liabilities. Learn the components of various long-term liabilities and the rules governing their accounting treatments.
  8. Options & Futures

    Play The Game Of Life

    The only real difference between you and Warren Buffett is a few well-chosen stocks – the billion-dollar fortune is the result.
  9. Options & Futures

    Financial Statements: Pension Plans

    By David Harper (Contact David)Following from the preceding section focusing on long-term liabilities, this section focuses on a special long-term liability, the pension fund. For many companies, ...
  10. Investing Basics

    The Industry Handbook: The Insurance Industry

    As a result of globalization, deregulation and terrorist attacks, the insurance industry has gone through a tremendous transformation over the past decade. In the simplest terms, insurance of ...
RELATED FAQS
  1. How is my insurance premium calculated?

    An insurance premium is the money charged by insurance companies for coverage. Insurance premiums for services differ from ... Read Answer >>
  2. What's the average salary of an actuary?

    Get insight into the intriguing career of risk analysis and forecasting. How much do actuaries make, and how is this field ... Read Answer >>
  3. Is Greece a developed country?

    Understand what determines if a country is developed, and learn why Greece, despite its well-documented fiscal woes, is still ... Read Answer >>
  4. Is Chile a developed country?

    Learn how Chile became the first country in Latin America to be recognized as a developed country, and understand why the ... Read Answer >>
  5. What caused the European / Eurozone debt crisis?

    Understand how insurance companies price insurance premiums, and learn the importance of data and statistics in the insurance ... Read Answer >>
  6. What is the difference between the death benefit and cash value of an insurance policy?

    Understand the difference between the various components of a life insurance policy including the death benefit and a policy's ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center