Life & Health Insurance Practice Exam

Which of the following is NOT included in calculating the net single premium?

1. Mortality

2. Interest

3. Expenses

4. None of the above

The correct answer is: Expenses

The net single premium is essentially the price needed to purchase a life insurance policy that provides a specified benefit at a single point in time, without accounting for the insurer's expenses or profit. This calculation primarily considers the present value of future death benefits, which incorporates elements such as mortality and interest. Mortality reflects the likelihood of an insured event occurring, while interest accounts for the time value of money—essentially calculating how much future payouts are worth in today's terms due to discounting them at a certain interest rate. Expenses, which cover the costs related to administering the policy, acquiring new business, and other operational expenses, are not considered in the calculation of the net single premium. The term "net" suggests that the premium is purely a function of the expected payouts adjusted for mortality and interest, excluding any additional costs. Therefore, understanding that expenses are not part of this net calculation clarifies why they are the correct answer in this context.