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Effect of Mortality Assumptions on Life Insurance Premiums

Abstract

The study examines the effect of mortality assumptions on life insurance premiums, focusing on how assumptions about the likelihood of death among policyholders influence the determination of premium rates. Mortality assumptions constitute an important component of life insurance pricing because insurers rely on expected mortality patterns to estimate future claims and financial obligations. The accuracy of these assumptions is therefore essential for establishing premiums that adequately reflect the expected cost of providing life insurance coverage. The study focuses on the relationship between mortality assumptions and the calculation of life insurance premiums. Mortality rates, life expectancy, age-specific death probabilities, and mortality improvement patterns provide important information for estimating the timing and frequency of future death claims. Changes in these assumptions can alter the expected present value of insurance benefits and consequently influence the premium amounts required from policyholders. The study further examines how variations in mortality assumptions affect different categories of life insurance policies. Differences in age, policy duration, benefit structure, and other policy characteristics can result in different levels of sensitivity to changes in mortality expectations. The study is expected to provide an understanding of how adjustments to mortality assumptions may produce corresponding changes in premium estimates across different life insurance products. The study also considers the implications of mortality assumptions for actuarial valuation and insurance risk management. Inaccurate mortality assumptions may result in premiums that are either insufficient or unnecessarily high relative to the actual risk experienced by the insurer. Appropriate mortality assumptions can therefore support more accurate valuation of insurance liabilities, improve financial planning, and strengthen the ability of insurers to maintain adequate resources for future policyholder obligations. The study is expected to show that mortality assumptions have a significant influence on life insurance premium determination. More realistic and appropriately updated mortality assumptions are anticipated to produce premium estimates that better reflect expected mortality experience. However, the effectiveness of mortality assumptions is expected to depend on the quality of mortality data, the relevance of the mortality table or model selected, changes in population mortality patterns, and the assumptions made about future mortality improvement. The study concludes that mortality assumptions are fundamental to accurate and sustainable life insurance premium determination. Their appropriate application can improve premium adequacy, actuarial valuation, financial planning, and life insurance risk management. The study therefore recommends regular review and updating of mortality assumptions, improved collection and analysis of mortality data, and continuous application of appropriate actuarial techniques to ensure that life insurance premiums remain consistent with emerging mortality experience.

Keywords: Mortality Assumptions, Life Insurance, Insurance Premiums, Mortality Rates, Life Expectancy, Mortality Tables, Actuarial Valuation, Premium Determination, Life Insurance Risk, Mortality Modelling, Insurance Pricing, Death Probabilities, Insurance Liabilities, Actuarial Science, Risk Management