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  • How is a mortality charge determined?
  • July 19, 2013
  • Tony Steuer

    By Tony Steuer, CLU, LA

    For starters, a mortality charge is the cost of pure life insurance protection, which is based on experience tables developed by actuaries and on actual mortality experiences.

    It is the amount a company periodically charges the policy owner for the insurance element in the policy. Other expenses include a fee for policy administration, company overhead, and taxes.

    Each company uses their own mortality charges, which are based on these tables, mortality experiences and other factors.

    A change in mortality charge has the greatest affect on a life insurance premium, but this doesn’t change very often.

    Larger companies determine their own mortality charges, while smaller companies rely on industry-wide statistics. As a result, there is a considerable rate variation among companies.

    At first glance, that might seem strange since the industry uses pretty much the same data to develop their mortality rates. However, the difference in rates is quite logical.

    Some companies specialize in writing coverage on those whose heath is substandard, while other companies take on specialized risks, such as smokers and those in hazardous occupations. Even so, there are still some curious anomalies.

    For example, Company A might be more competitive at issue age 40, while Company B is more competitive at issue age 50

    A company’s mortality experience is measured (by A.M. Best) at the rate in-which death benefits are paid, then compared to the company’s own actuarial expectations which are used to price the premium.

    The difference in mortality charges among life insurance companies can have a greater impact on a policy’s performance than any interest return or dividend. However, this figure doesn’t change very often.

    What should I ask about a company’s mortality experience?

    -Is the company projecting actual, current experience or better-than-current experience?

    -Do the mortality rates vary by product? If so, why?

    -Does the company project an unrealistic increase in mortality expenses? If so, is it guaranteed?

    The key is to determine which method is being utilized in a particular illustration; however, this is not an easy task. I recommend that you ask, and then get it in writing, if you can.

    If you have any additional questions, email me at

About Tony Steuer

Noted insurance author Tony Steuer has spent over 25 years in the life insurance industry. Steuer’s leadership roles include serving on the California Department of Insurance Curriculum board and the National Financial Educator's Council Curriculum Advisory Panel as well as having served as President of the San Francisco Chapter of the American Society of CLU & ChFC, President of the leading Life Insurance Producers of Northern California, and as a board member of the San Francisco Life Underwriters Association. Mr. Steuer is the author of Questions and Answers on Life Insurance: The Life Insurance Toolbook, The Questions and Answers on Life Insurance Workbook and The Questions and Answers on Disability Insurance Workbook - the first two were awarded the “Excellence in Financial Literacy (EIFLE) Award from the Institute of Financial Literacy. Steuer holds a Chartered Life Underwriter (CLU) designation and also holds the Life and Disability Insurance Analyst License, a designation that is held by less than thirty people in California.

Creative Commons License
Questions & Answers on Life Insurance by Tony Steuer, CLU, LA, CPFFE is licensed under a Creative Commons Attribution 3.0 Unported License.

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