Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
The three main components that make up the life insurance premium are:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
The life insurance premium is built from three pricing elements: the mortality charge, the cost of death claims based on the mortality table; the expense component, which covers acquisition, administration, and maintenance costs; and investment earnings, the interest the insurer earns on reserves, which reduces the premium needed. These three factors are combined so the premium is adequate, not excessive, and not unfairly discriminatory. Morbidity is the equivalent cost-of-benefits factor used in disability and health pricing.
Why the other options are wrong
- B) Commissions and taxes are subparts of the expense component, not separate pricing factors.
- C) Dividends are returns to participating policyowners, not a pricing component.
- D) Morbidity relates to sickness-based coverage; life insurance pricing uses mortality.
Memory hook
Premium = mortality + expenses - interest. Three ingredients, one price.