Life insurance premiums are primarily computed based on which three factors?

Life insurance premiums are primarily computed based on mortality, interest, and expenses. Mortality refers to the likelihood of death within a specific timeframe, which heavily influences the amount of risk that the insurance company assumes when issuing a policy. By assessing mortality rates, insurers can predict how many policyholders are likely to utilize their death benefits within a given period.

Interest pertains to the income that insurers earn on the premiums they collect, which is invested to generate additional revenue. The interest component plays a critical role in determining the insurer's future ability to pay claims and contributes to lower premiums since higher investment returns can offset the amount needed from premiums.

Expenses cover the administrative costs associated with underwriting and servicing policies, including marketing, commissions, and operational costs. By analyzing these expenses, the insurer can ensure that premium rates not only support the anticipated claims but also cover the necessary costs to run the business effectively.

In summary, these three factors are interconnected and foundational in establishing life insurance premiums, ensuring that the insurer can adequately manage risk while remaining financially viable.