Mortality risk is the risk that an insured person or population dies sooner than expected. This risk exposure can cause the mortality risk holder to lose money or make less of a profit.
An example of mortality risk in the primary market is life insurance. The mortality risk holder is the insurance company that underwrites the policy; if the insured dies sooner than expected, the insurance company will have collected fewer premiums against that policy relative to the cost of putting the policy in force and paying the death benefit.
An example of mortality risk in the secondary market is life contingent structured settlements. The investor pays the structured settlement holder a lump sum up-front, and in turn receives the payments from the insurance company over time. If the original annuitant dies sooner than expected, the investor will receive, in total, less than they would have if they had lived longer.
Return to the Glossary Home Page here https://lminvestor.com/glossary/.
