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Actuarial Assumption

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An actuarial assumption is an estimate of an unknown value made in accordance with methods of actuarial science. An actuarial assumption is made using statistical tools such as the correlation of known values to possible outcomes for the unknown value. Typically, complex mathematical and statistical techniques are used in the preparation of an actuarial assumption.

A common actuarial assumption that is made is life expectancy of a person seeking life insurance. An actuary working for the insurance company will take into account the proposed insured's age, height, weight, gender, tobacco usage, and certain data points relating to health history to make an actuarial assumption of the most likely life expectancy for underwriting purposes. Actuaries also will make an actuarial assumption in regards to pension plans. Using time value of money calculations and certain values for investment returns and payout requirements an actuarial assumption is made so the plan sponsor can have an estimate of funding requirements.



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