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. Mortality Table

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

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

    Life expectancy in social science is the statistical age until ...
  4. Actuarial Risk

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

    The examination of risk by a highly educated and certified professional ...
  6. IRR Rule

    A measure for evaluating whether to proceed with a project or ...
Related Articles
  1. Personal Finance

    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. Insurance

    Beware the Sneaky Math of Universal Life Insurance

    Universal life insurance's cash value can be a cash cow – if there's any left. Read on to see if it'll work as an income source after you've retired.
  7. Retirement

    Shopping the New Retirement Products

    There are more options than ever for retirement portfolios these days. Choosing the right product comes down to your needs, time and management style.
  8. Products and Investments

    Cash Value vs Term Life Insurance: Which is Best?

    The debate between cash value life insurance and term insurance plus an investment plan is an ongoing one. Here's a look at both sides of the argument.
  9. Your Practice

    Advisors: Win Over Millennials with Insurance

    Millennials don’t have the same values and goals as previous generations. Here are some tips on how advisors can adapt to their needs and wants.
  10. Insurance

    Getting Your (Insurance) House in Order

    From starting a family to retirement, insurance can play a role in taking care of financial needs. This piece looks at some of the choices you can make.
RELATED FAQS
  1. What's the difference between Social Security Disability Insurance (SSDI) and Supplemental ...

    Disabled persons can receive payments through two programs: Social Security Disability Insurance and Supplemental Security ... Read Full Answer >>
  2. Do plane tickets get cheaper closer to the date of departure?

    The price of flights usually increases one month prior to the date of departure. Flights are usually cheapest between three ... Read Full Answer >>
  3. Does renters insurance cover personal injuries?

    Renters insurance provides two main forms of coverage – liability and contents insurance – and they are offered together ... Read Full Answer >>
  4. Does renters insurance cover jewelry?

    Renters insurance provides personal property coverage that covers your personal property – including jewelry – in case of ... Read Full Answer >>
  5. Why might landlords require renters insurance?

    Landlords can require renters insurance to lower their own liability and insurance costs. According to data from the Insurance ... Read Full Answer >>
  6. What is the expense ratio in the insurance industry?

    The expense ratio in the insurance industry is a measure of profitability calculated by dividing the expenses associated ... Read Full Answer >>
Hot Definitions
  1. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  2. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  3. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  4. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  5. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
Trading Center