Which three factors are used to calculate life insurance premium rates?

Why A is correct

Life insurance premiums are calculated from three components: mortality, which is the cost of death claims based on mortality tables; expenses, which are the insurer's costs of operations, commissions, and administration; and investment earnings, which are the interest the insurer earns on reserves and cash values and which offsets the other costs. The mortality charge increases with age, expenses include acquisition and ongoing costs, and the investment return reduces the net premium the insured must pay. This three-factor structure is fundamental to life insurance pricing.

Why the other options are wrong

• Age affects mortality, but income and education are not direct premium components; the pricing factors are mortality, expenses, and investment earnings. This answer describes a different situation from the one in the question and is therefore incorrect under the facts given here.
• Morbidity is used in disability and health pricing; dividends and taxes are not the core three factors used to calculate life premiums. This choice does not fit the arrangement described in the question, so it is clearly not the right option to choose.
• Underwriting, claims, and marketing are business activities, not the actuarial components used to calculate the premium rate. Accordingly, this option is not correct because it does not match the specific rule or product that is described in the question.

Memory hook

A life premium is mortality plus expenses minus investment earnings.