Gross Premium

Mortality costs and expenses, with expected investment earnings offsetting part of the cost — The gross premium is built from the mortality charge, the expense loading for acquisition, administration, and commissions, and an assumed rate of investment return that reduces the amount needed from the insured. The net premium is the amount needed for mortality after crediting the assumed investment earnings; adding expenses and a margin produces the gross premium. A higher assumed investment return lowers the premium, while higher expenses raise it. The pricing process must also account for expected mortality improvement and a profit margin. Understanding these components explains why different products carry different premiums.

National insurance concept

Mortality cost, expenses, and investment earnings — Life insurance pricing rests on three elements: mortality (the cost of anticipated death claims based on the mortality table), expenses (acquisition, administration, and maintenance costs), and interest (investment earnings credited to reserves, which reduce the premium needed). These components form the basis of rate making described in objective LIFE-II.I.4.

National insurance concept