Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
The premium charged for a life insurance policy is primarily based on which three factors?
Select an option to reveal the answer and the full 3-part explanation — free, no signup.
Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Life insurance premiums are built from three components: expected mortality costs based on the mortality table, the insurer's expenses for acquiring and administering policies, and investment earnings on the reserves that accumulate. Higher expected mortality raises the premium; higher expenses raise it; higher investment earnings lower it. Morbidity is the corresponding component for accident and health insurance, while age, occupation, and hobbies feed into risk classification but are not the three pricing components themselves.
Why the other options are wrong
- B) Morbidity is the A&H pricing analog, dividends are distributions to policyowners, and commissions are a component within expenses — this set is not the three life pricing factors.
- C) Age, occupation, and hobbies help classify the risk within a mortality expectation; they are not the three structural pricing components.
- D) Inflation, interest rates, and tax brackets influence economics generally, but the rate structure itself rests on mortality, expenses, and investment earnings.
Memory hook
Premium = deaths + overhead – investment earnings.