Defined terms for the annuity market and lifetime income landscape.
Mortality basis risk is the risk that an individual's actual mortality experience diverges from the average mortality assumption used by the pool or insurer underwriting their lifetime income arrangement.
Mortality-contingent redistribution is the pool mechanism by which the share of pool resources that would have funded a deceased member's future income is reallocated to surviving members rather than returned to the deceased member's estate.
A mortality credit is the share of income that flows to a surviving member of a lifetime income arrangement because another member has died, funded by the share of pool resources that would have been paid to that member had they lived.
Mortality drag is the cost of self-managing longevity risk — the reduction in sustainable lifetime payout rate that a self-managed portfolio incurs relative to a pooled equivalent, because the self-manager bears the full longevity tail and must reserve against living beyond the planning age.
