Safety Margin

What Does Safety Margin Mean?

A safety margin refers to the number of sales or the amount of gains needed to cover expenses or to break even. In the context of life insurance, it can also refer to a higher-than-expected mortality rate, which impacts life insurance policies, or a lower-than-expected mortality rate, which affects annuities offered by a life insurance company.

Insuranceopedia Explains Safety Margin

A safety margin refers to the number of sales or the amount of gains needed to cover expenses or to break even. In the context of life insurance, it can also refer to the difference between actual and expected mortality rates—either an increase in mortality rates above what was anticipated or a decrease in mortality rates below expectations for the annuities offered by the insurance company. Insurers build this margin into their pricing, which is one reason mortality assumptions help determine the cost of a life insurance premium. For annuity issuers, the safety margin matters most when policyholders live longer than expected, since annuity contracts commit the insurer to continued payments regardless of how long the annuitant survives.