#54 | Life Insurance – Mortality or Financial Risk?

The life insurance industry has always stood at the crossroads of risk pooling and finance. Life insurance is different from other types of insurance because we’re not underwriting the possibility of a claim – we’re underwriting the certainty of it over an uncertain period of time. The function of the financial markets is to value in the present what is expected to pay out in the future. Therefore, life insurance is necessarily comprised of part mortality risk and part financial risk. Most outside observers assume that the mortality component dominates our industry because the most commonly held product is term insurance, which is the closest thing we have to a mortality risk product