Actuarial Tables, Mortality Assumptions, and Their Impact on Policy Valuation

High net worth estate planning in the United States increasingly relies on life insurance for wealth transfer and tax mitigation. For advisors structuring large insurance positions — from private placement life insurance (PPLI) to premium-financed universal life (UL) — actuarial assumptions drive the valuation, tax outcomes, lender terms, and strategic choices. This article explains how actuarial tables and mortality assumptions affect policy valuation, highlights practical implications in major U.S. markets (New York, California, Florida), and provides tools advisors can use when advising trustees, beneficiaries, and lenders.

Why actuarial tables and mortality assumptions matter

At its core, the actuarial valuation of a life insurance policy is the present value of expected future insurer cash flows (premiums, expenses, policy loans, and death benefits) given a set of assumptions:

• Mortality (probability of death at each age)
• Discount rate / interest assumption
• Expense loadings and lapse/surrender behavior
• Mortality improvement trends

Changes in any of these assumptions materially affect the policy's present value, reserve, and taxable value in estate inventories or gift/estate tax calculations.

Key U.S. references and resources:

• Society of Actuaries (SOA) experience studies and mortality tables: https://www.soa.org/resources/experience-studies/
• IRS Section 7520 (used for valuing life interests/annuities and often referenced in estate work): https://www.irs.gov/retirement-plans/section-7520-interest-rates

Common actuarial bases used in high-net-worth planning

• SOA/NAIC standard tables (e.g., RP-2014, 2017 CSO depending on product) — widely used for pricing and internal modeling.
• Valuation Basic Tables (VBT) and Commissioner's Reserve Valuation Method — used for statutory reserving and some valuation opinions.
• Custom underwriting mortality tables for substandard or preferred lives used in illustrations.
• Mortality improvement scales (e.g., MP-2020, MP-2019) — applied to project future mortality improvements for long-duration strategies like PPLI or premium-financed UL.

These bases are selected depending on purpose: pricing, statutory reserve, GAAP, or estate-tax valuation. Advisors should always confirm the base used in any third-party valuation or lender credit model.

How mortality assumptions change valuations — practical effects

• A more conservative mortality assumption (higher mortality rates) increases the present value of insurer expected payouts and therefore increases the actuarial value of death benefit guarantees (raising reserves and lender collateral requirements).
• A higher discount rate decreases present value; conversely, low interest environments inflate actuarial values.
• Mortality improvement (future declines in death rates) reduces the present value of near-term death benefits but increases the projected duration of coverage, changing long-term funding requirements and lender stress scenarios.

Practical consequences for HNW planning:

• Estate tax valuations (e.g., valuing a retained interest, life estate, or reporting a policy in an estate inventory) hinge on the chosen mortality and 7520 rate.
• Lenders financing premiums evaluate both actuarial value and sensitivity to morbidity/mortality deterioration and interest-rate moves when setting loan-to-value (LTV) and margin calls.
• Insurers pricing private placement or large UL blocks will adjust minimum premiums and credited assumptions based on cohort mortality and expected lapse behavior.

Illustrative comparison: sensitivity drivers (qualitative + indicative figures)

Note: magnitude depends on age, gender, underwriting class, and policy structure. For long-duration death benefits (e.g., PPLI with minimal cash surrender), a 100-basis-point move in discount rate can change actuarial present values by single-digit to low double-digit percentages depending on term and age.

Example scenarios relevant to U.S. advisors (New York, California, Florida)

1. PPLI placement (typical minimums and costs)

   • PPLI is commonly used by ultra-high-net-worth individuals in New York and California for tax-efficient wealth transfer.
   • Typical minimum single-premium structures: $1 million–$5 million+ (source: Investopedia, industry practice). See: https://www.investopedia.com/terms/p/private-placement-life-insurance.asp
   • Insurance providers and private placement specialists include Lombard International, Munich Re’s life re/insurance desks, and large wealth management affiliates (e.g., BNY Mellon, UBS private client service wings). Premiums and credited rates are negotiated and priced to cohort mortality and chosen underlying asset strategies.

2. Premium financing for large UL policies

   • Lenders (Goldman Sachs Private Bank, JPMorgan Private Bank, Bank of America Private Bank) structure loans using the life policy as collateral. Loan terms often reference a spread over a market index (SOFR + spread).
   • Typical financing economics in modern markets often vary widely; advisors should model SOFR±spreads, amortization triggers, and collateral marks under stress scenarios.
   • See related guidance on valuation risk in financing: Valuation Issues in Premium Financing: Collateral Mark-to-Market and Stress Testing.

3. Estate tax reporting and 7520 sensitivity

   • When valuing a life interest or retained policy interest for federal estate tax, actuarial assumptions interact with the IRS 7520 monthly published rate. Small changes in the 7520 rate materially change present value calculations for life estates and remainders. See: https://www.irs.gov/retirement-plans/section-7520-interest-rates
   • For contested valuations, use independent actuarial reports and reference cases; see: Valuing Life Insurance Interests for Estate Tax Purposes: Methods and Pitfalls.

Choosing an actuarial approach — what advisors should ask

• Which mortality table and improvement scale did the appraiser use?
• What discount rate was applied — market-based (yield curve) or regulatory (7520) — and why?
• How are policy loans, cash values, and potential lapses modeled?
• Was a sensitivity or stress test performed (interest-rate up/down 100 bps; mortality shock)?
• Was the valuation designed for estate reporting, lender collateral analysis, or internal planning? (Each has different standard practices.)

For premium financing specifically, review: How Actuarial Valuation Drives Lender Decisions and Loan Structuring for High-Value Policies.

Vendor selection and pricing realities

• Traditional mutual insurers (MassMutual, Northwestern Mutual, New York Life) and large stock insurers (John Hancock, Prudential) price permanent products with publicly filed reserve bases; their guaranteed cost illustrations differ by underwriting class and state (e.g., New York pricing uses state-required reserves).
• PPLI and linked wrap providers (Lombard International, Forum) typically require institutional negotiation; expect minimums in the $1M–$5M range and product fees and insurer expenses that make comparative modeling essential (source: Investopedia).
• Term and small-dollar comparisons (for context) — average U.S. market quotes: a healthy 40-year-old male may pay several hundred dollars annually for $1M 20-year term coverage (see Policygenius cost guides): https://www.policygenius.com/life-insurance/how-much-does-life-insurance-cost/

Always obtain firm-specific illustrations and third-party actuarial opinions for large commitments. Independent valuations can be essential in probate or contested matters; see: Expert Witness and Appraisal Considerations When Insured Interests Are Contested in Probate.

Practical checklist for advisors (U.S. HNW focus)

• Document the mortality table, improvement scale, and discount rate used in every valuation.
• Run sensitivity tests: ±100 bps discount, stressed mortality, and lapse scenarios.
• Coordinate insurer illustrations, independent actuarial valuations, and lender models early.
• For PPLI and premium financing, confirm minimum premium requirements and negotiate lender covenants and margin-call mechanics (SOFR-linked spreads).
• Keep state-specific considerations in mind (New York Department of Financial Services rules vs. other states), especially for large guaranteed products.

Conclusion

For U.S.-based high net worth estate planning, actuarial tables and mortality assumptions are not academic minutiae — they directly influence policy valuation, estate-tax outcomes, lender willingness to finance, and ultimately whether an insurance strategy meets client objectives. Advisors should insist on transparent actuarial bases, independent sensitivity testing, and coordination among insurers, valuation actuaries, and lenders before implementing or reporting large insurance positions.

Further reading and tools:

• Modeling Mortality Improvement and Pricing Risk for Long-Term Insurance-Based Strategies
• Valuation Issues in Premium Financing: Collateral Mark-to-Market and Stress Testing