What does mortality risk refer to in life insurance?

Mortality risk in life insurance specifically refers to the chance of the insured dying within a specific timeframe. It is a key factor that life insurance companies evaluate to determine premiums and coverage. Insurance involves managing risks, and mortality risk is particularly pertinent because it directly impacts the insurer’s financial obligations. By assessing mortality risk, insurers estimate life expectancy and the likelihood of payout, which helps them establish appropriate premiums for different individuals based on their health status, age, and other relevant factors. Understanding this concept is crucial for both insurers and policyholders, as it influences the overall functioning of life insurance products.