In calculating an insurance policy's gross premium, which factors are involved?

In calculating an insurance policy's gross premium, the primary factors involved include mortality, interest, and expenses.

Mortality refers to the expected rate of death within a specific group, which impacts how insurers assess risk and determine premiums for life insurance policies. The higher the expected mortality rate, the higher the future expected payouts, leading to increased premiums.

Interest pertains to the earnings insurers anticipate from investing the premiums they collect. The interest rate influences how much the insurer expects to accumulate in investment income while holding onto the premiums before claims are paid. This factor can somewhat offset the cost of claims, contributing to the gross premium calculation.

Expenses are the operational costs that insurance companies incur to maintain their business, including administrative expenses, commissions, and overhead. These costs are factored into the gross premium to ensure that the insurer can cover its outlays and generate a profit.

When these three components—mortality, interest, and expenses—are combined, they provide a comprehensive overview of the premium needed to cover risks and ensure the company's financial viability. This aligns with the definition of gross premium, which is the total premium charged before any deductions or contributions.