Life Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
Life insurance premiums are computed using which three primary components?
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
The three building blocks of a life insurance premium are mortality (the expected death rate among insureds, drawn from mortality tables), interest (investment earnings the insurer assumes it will earn on premiums), and expenses (the insurer's operating costs, including acquisition and administration). A higher assumed interest rate lowers the premium, while higher expected mortality or expenses raises it.
Why the other options are wrong
- B) Morbidity is used in disability and health pricing; life premiums are based on mortality, not morbidity.
- C) Inflation and dividends are not pricing components of a base premium; dividends are determined by experience.
- D) Taxes are part of expenses, and cash value is a policy feature, not a pricing input.
Memory hook
Premiums = mortality + interest + expenses. Deaths, dollars earned, and the cost of doing business.