Life & Health Insurance Exam (National Portion)Life InsuranceHard
A life insurance agent is explaining the concept of 'net single premium' to a client. Which of the following components are considered when calculating the net single premium?
- AMortality tables, interest earnings, and policy dividends.
- BMortality tables, interest earnings, and operating expenses.
- CMortality tables and interest earnings only.
- DMortality tables, interest earnings, and commissions.
Show answer & explanationAnswer & explanation
Correct answer: C. Mortality tables and interest earnings only.
The net single premium is calculated using only mortality tables (to predict deaths) and assumed interest earnings (on the premium paid). It does not include expenses or commissions, which are added later to determine the gross premium.
Why the other options are wrong
- A. Policy dividends are a return of excess premium, not a component used in premium calculation.
- B. Operating expenses are part of the gross premium, not the net single premium.
- D. Commissions are part of the gross premium, not the net single premium.
Net Single Premium
The pure cost of a life insurance policy, calculated based on mortality tables and assumed interest earnings, excluding all expenses and loading charges.
- Pure cost of insurance
- Uses mortality tables (probability of death)
- Uses assumed interest earnings
- Excludes expenses, commissions, and taxes
Memory trick: Think of premium as two layers: the 'net' core, then the 'gross' outer shell with all the extras.