What are the three elements that make up a life insurance premium?

The three elements that make up a life insurance premium are mortality experience, investment earnings, and operating expenses.

Mortality experience refers to the statistical data used to estimate the likelihood of death within a certain population and time frame. This factor is critical as it directly influences the cost of the insurance. Insurers assess the risk of loss and set premiums accordingly, taking into account the age, gender, health, and lifestyle of policyholders.

Investment earnings pertain to the returns that insurance companies generate from investing the premiums they collect before they are paid out as claims. These earnings help offset some of the costs associated with the insurance coverage and can lower the overall premium that policyholders need to pay.

Operating expenses include the costs of running the insurance company, such as administrative costs, marketing, and commissions to agents. These expenses must be covered by the premiums collected from policyholders.

Together, these three components work in conjunction to ensure that the insurer can fulfill its obligations while maintaining financial solvency, and this is why they constitute the basis for determining life insurance premiums.