Rhode Island Life Insurance Practice Exam

Which of the following is NOT a component of Life insurance premiums?

1. Morbidity rate

2. Mortality rate

3. Investment return

4. Expenses

The correct answer is: Morbidity rate

The correct answer highlights that morbidity rates are not a component of life insurance premiums. Life insurance primarily focuses on mortality, which refers to the risk of death among an insured population, rather than morbidity, which deals with the incidence of illness or disability. In life insurance, premiums are calculated based on the mortality rate, which estimates the likelihood of policyholders dying within a specific time frame, thereby helping insurers determine the risk they are taking on when underwriting a policy. Investment returns play a role as they indicate how much the insurer can expect to earn from the invested premiums over time. Additionally, expenses are included because they represent the costs incurred by the insurance company in administering the policy, such as underwriting, marketing, and claims processing expenses. Overall, the focus of life insurance is on mortality rather than morbidity, making morbidity rates irrelevant for premium calculations in this context.