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Effect of Mortality Assumption Sensitivity on Life Insurance Premiums

Abstract

Mortality assumptions represent the expected probabilities of death among insured lives and constitute a fundamental component of life insurance premium valuation. Since life insurance premiums are determined partly from expected future benefit payments, changes in mortality assumptions can alter the estimated frequency and timing of claims. The sensitivity of premiums to mortality assumptions is therefore an important consideration in actuarial pricing and life insurance valuation. This study examines the effect of mortality assumption sensitivity on life insurance premiums. It will assess how changes in assumed mortality rates influence the level of premiums required for life insurance contracts. The study will also examine the relationship between mortality assumptions, policyholder age, policy duration, benefit amounts, expected claims, and actuarial premium values. The study will focus on actuarial factors including mortality rates, age-specific mortality probabilities, policy duration, benefit amounts, premium payment periods, interest rates, and expected claim payments. Actuarial valuation and sensitivity analysis techniques will be applied to estimate premiums under alternative mortality assumptions and determine the extent to which mortality changes affect life insurance premium requirements. A quantitative research approach will be adopted for the study. Relevant mortality and life insurance data, including mortality rates, policyholder ages, policy durations, benefit amounts, premium payments, and historical claims experience, will be obtained from appropriate actuarial and insurance sources. Descriptive statistics, mortality analysis, actuarial present value calculations, sensitivity analysis, scenario analysis, and statistical techniques will be employed to evaluate the effect of mortality assumption sensitivity on life insurance premiums. The study is expected to find that life insurance premiums may be sensitive to changes in mortality assumptions. Higher assumed mortality rates may increase projected death benefit payments and consequently increase the premium requirements for life insurance contracts, while lower mortality assumptions may produce lower expected claim costs. The magnitude of the effect may vary according to policyholder age, policy duration, benefit structure, interest rate assumptions, and the timing of expected claims. The findings may be useful to actuaries, life insurance companies, underwriters, product developers, and financial managers. Understanding mortality assumption sensitivity can support more accurate premium determination, product pricing, reserve estimation, liability management, and financial planning. It may also assist insurers in evaluating the potential effects of changes in mortality experience on the adequacy of life insurance premiums. The study concludes that mortality assumption sensitivity is an important consideration in life insurance premium determination because mortality assumptions directly influence expected benefit payments and actuarial values. It is therefore recommended that insurers regularly review mortality assumptions and conduct sensitivity analysis using alternative mortality scenarios. Incorporating reliable and periodically updated mortality assumptions into pricing models may improve premium adequacy and strengthen the financial management of life insurance products.

Keywords: Mortality assumption sensitivity, life insurance premiums, mortality assumptions, life insurance pricing, actuarial valuation, mortality rates, death probabilities, expected claims, benefit payments, policyholder age, policy duration, premium determination, actuarial present value, sensitivity analysis, life insurance.