Which of the following are factors that affect the price of an insurance policy quizlet?

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These extra costs may include the cost of a housekeeper, child care, more meals out, transportation, laundry services, and so on. They do not include the lost potential earnings of the surviving spouse, who often must take time away from the job or to care for the family.

If there are teenage children, the $10,000 figure can be reduced. If there are more than 2 children under age 13, or anyone in the family suffers poor health or has special needs, the $10,000 figure can vary greatly based upon recent estimates of nonworking spouse's duties and proposed wages as reported in the nearby Did You Know? box.

1. Five times your personal yearly income
2. Total approximate expenses above and beyond your daily living costs for you and your dependents (e.g., tuition, care for a disabled child or parent) amount to:
3. Your emergency fund (3 to 6 months of living expenses) amounts to:
4. Estimated amount for your family's financial needs (add lines 1 through 4)
6. Your total liquid assets (e.g., savings accounts, CDs, money market funds, existing life insurance both individual and group, pension plan death benefits, and Social Security benefits
7. Subtract line 6 from line 5 and enter the difference here

The net result (line 7) is an estimate of the shortfall your family would face upon your death. Remember, these are just rules of thumb. For a complete analysis of your needs, consult a professional.

Question 1
Loading reflects the costs that the insurance company can expect to pay for its operations. These costs include all of the following, EXCEPT:

employee benefits
salaries and commissions
*mortality costs
the insurer's expenses for rent
Loading reflects an insurance company's cost of operation, excluding mortality costs.
Question 2
Actuaries calculate net single premiums based on which of the following?

*mortality and interest assumptions
mortality and assumed bond rates
morbidity and interest assumptions
mortality and dividend assumptions
The net single premium for a traditional life insurance policy reflects two of the premium factors: mortality and interest.
Question 3
What is the result of Alice paying her life insurance premiums more frequently than once a year?

no effect
higher annual premiums to account for the increased risk to the insurer
lower annual premiums
*higher annual premiums to account for lost interest and additional insurer costs
Paying more frequently than once a year results in higher annual premiums to account for lost interest and additional insurer costs.
Question 4
Which of the following statements generally guides insurance companies in determining "loading"?

The resulting net premiums should help the company maintain or improve its competitive position.
Total loading from all policies should meet industry averages.
Expenses should be divided primarily among the company's most profitable plans and lowest mortality experience.
*Total loading from all policies should cover total operating costs, provide a safety margin, and contribute to profits or surplus.
Total loading from all policies should cover total operating costs, provide a safety margin, and contribute to profits or surplus.

Question 1
Which one of the following statements best describes if and when a life insurance premium may change under the level premium concept?

*Premiums are set and remain fixed over the full term of the premium-paying period.
Premiums may vary each time they are due based on the insured's current insurability.
Premiums may change if the risk to the insurer increases over time.
Premiums are either fixed or flexible at the option of the insurer.
The payment amount does not change even though the risk to the insurer increases over time.
Question 2
Actuaries begin the process of calculating life insurance premium rates by using mortality tables, which help predict future experience but not with 100 percent certainty. How do actuaries compensate for this uncertainty when determining the gross premium charged to the policyowner?

*They add an expense load, which includes a safety margin factor, to the net premium to produce the gross premium.
They add a safety margin load to the mortality charge, increasing the net premium.
They assume a higher rate of interest than actually expected, which provides a safety margin by increasing the gross premium.
They assume there will be fewer deaths than their past mortality experience would predict, which provides a safety margin by increasing the gross premium.
Actuaries add an expense factor (also called a load factor) to the net premium to produce the gross premium. Providing a safety margin to overcome mortality uncertainty is a key objective for the load.
Question 3
An insurance company is developing a new product. Which one of the following is the actuaries' most important responsibility?

*deciding the premium for the new product
assuring that the new product will be appealing to average consumers
deciding the classification of the new product
creating a product with competitive features and benefits
This would be done by another department in an insurance company.
Question 4
Which of the following best describes the premium tax insurance companies must pay when they receive premiums?

*Most companies pass this tax on to their policyowners in some way, either directly or indirectly.
Companies absorb these expenses and do not pass them along to policyowners.
It is imposed by the federal government.
It is a federally mandated tax that is collected at the state level by all states.
Most companies pass this tax on to their policyowners in some way, either directly or indirectly.

Question 1
What is the actuary's first step in determining the premium to charge for a policy?

*Calculate the net single premium.
Calculate expenses and contingencies.
Calculate the annual dividend schedule.
Calculate the gross premium.
Calculating expenses and contingencies comes later in the process.
Question 2
Which one of the following do actuaries use to predict the likelihood of an individual dying at any certain age in the premium rate-making process?

*mortality
company experience
morbidity
industry-wide rating history
Mortality is the element of premium rate-making that reflects the rate of death of prospective insureds.
Question 3
An actuary is setting life insurance rates. What affect will it have on a policy if higher interest assumptions are used?

Premiums will be higher.
*Premiums will be lower.
It will have no effect.
The effect cannot be known.
In making life insurance rates, higher assumed interest earnings reduce premiums.
Question 4
The expense component of the pricing process is known as the loading. It reflects the costs, other than mortality costs, that the insurance company can expect to incur for all of its operations. All of the following are among the considerations that guide insurance companies in determining loading, EXCEPT:

*Expenses should be weighted to older issue ages.
Expenses should be apportioned equitably over the company's various plans.
Total loading from all policies should cover total operating costs, provide a safety margin, and contribute to profits or surplus.
The resulting gross premiums should permit the company to be competitive in the insurance market.
Expenses should be apportioned equitably over the company's various plans and issue age.

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