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. Life Expectancy

    1. The age until which a person is expected to live. 2. The remaining ...
  3. Actuarial Analysis

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

    The risk that the assumptions that actuaries implement into a ...
  5. Longevity Risk

    The risk to which a pension fund or life insurance company could ...
  6. Policyholder Surplus

    The assets of a mutual insurance company minus its liabilities. ...
Related Articles
  1. Insure Your Future With A Career As ...
    Home & Auto

    Insure Your Future With A Career As ...

  2. The Investing Risk Of Underfunded Pension ...
    Retirement

    The Investing Risk Of Underfunded Pension ...

  3. Operational Risk: A Must-Know For Investors
    Active Trading Fundamentals

    Operational Risk: A Must-Know For Investors

  4. How To Evaluate Pension Risk By Analyzing ...
    Investing

    How To Evaluate Pension Risk By Analyzing ...

comments powered by Disqus
Hot Definitions
  1. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  2. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  3. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  4. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  5. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
  6. Earnings Before Interest After Taxes - EBIAT

    A financial measure that is an indicator of a company's operating performance. EBIAT, which is equivalent to after-tax EBIT ...
Trading Center