Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
Life insurance premium rates are primarily based on which three components?
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Life insurance rates are built from three elements: mortality (the expected cost of death claims based on the mortality table), expenses (the insurer's cost of doing business, including administration, acquisition, and taxes), and investment income (earnings the insurer expects to make on reserves and premiums). These three factors determine the premium charged for a given amount of coverage. Morbidity is the analogous component for health and disability insurance.
Why the other options are wrong
- B) Morbidity is used in health and disability rate-making, not as a primary component of life insurance rates; taxes and loans are not separate rate components.
- C) Reinsurance and dividends are downstream items that affect results but are not among the three primary rate-building components.
- D) Sales volume and premium mode are administrative choices, not actuarial building blocks of the rate.
Memory hook
Three ingredients in the rate recipe: death costs, running costs, and what the money earns.