Mortality charge is an actuarial statistic used to calculate the risk of death in life assurance policies. It is typically expressed as per thousand of a given insured population and is used by life insurers to set rates and other factors in a policy. Essentially, the higher the mortality charge, the higher the risk of death.
How Calculations Work
Typically, mortality charges are based on the annual mortality rate per thousand lives for the overall population or for a specific age group. This rate can vary greatly across countries, demographic groups, and even ages. Insurers take into account factors that affect mortality such as age, gender, health conditions, lifestyle, occupation, and other demographic attributes. Insurers will then use these to create different tables with mortality charges that are updated periodically.
Real-Life Examples
Some examples of mortality charges are the Annual Premium Equivalent (APE) rate and the Credibility Weighted APE Rate. The APE rate is the estimated number of deaths per annum of a life assurance policyholder. It takes into account different mortality estimates of primary policyholders, dependants, joint lives, and other policyholders. The Credibility Weighted APE Rate is used to take into account the uncertainty of future mortality rates where the mortality risks of various policyholders may be very different.
Why Mortality Charge Is Important
Mortality charge helps insurers to estimate how much premium they should charge policyholders for life or health insurance. Without a mortality charge, insurers would be unable to accurately estimate how much money to set aside for policy payouts in the event of death. Insurance providers also use mortality charges to estimate the likelihood of success for different investment products.
Mortality charge is an important concept for any business professional who is involved in life insurance or health insurance. Understanding mortality charges and how they affect the premiums policyholders are charged helps insurers better understand their risks and create more effective products to meet customer needs.