Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
A life insurance premium is generally based on which three components?
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Answer & full 3-part explanation (select an option above, or peek)
Why D is correct
The life insurance premium has three components: mortality, the cost of death benefits based on the mortality table; expenses, the insurer's operating, acquisition, and administrative costs; and interest, the investment earnings on premiums that reduce the net cost. Together these determine the rate charged for a given risk classification. Age, gender, and occupation are rating factors that shape the mortality risk, but they are not the structural components of the premium itself.
Why the other options are wrong
- A) Claims and dividends are outcomes of policy experience, not input components used to build the premium.
- B) Age, gender, and occupation are risk classification factors, not the three structural components of the premium itself.
- C) Morbidity is the rate basis for disability and health products; life premiums rest on mortality, expenses, and interest.
Memory hook
Premium = mortality + expenses − interest. Three ingredients, one price.