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Fundamentals of Risk and Insurance, 11th Edition by Therese M. Vaughan, Emmett J. Vaughan

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CHAPTER OBJECTIVES

When you have finished this chapter, you should be able to

  • Differentiate between net premiums and gross premiums in life insurance
  • Identify the three factors that are used in computing life insurance rates and explain how each enters into the computation
  • Describe the nature of a mortality table and explain the nature of the entries for each age
  • Describe the net single premium and explain the way it is computed
  • Explain the relationship of the net single premium to annual level premiums and describe the way in which annual level premiums are computed
  • Explain how the net premium for an annuity is computed
  • Distinguish between benefit-certain life insurance contracts and benefit-uncertain contracts and explain the significance of the distinction

In this chapter, we will examine the manner in which the insurance company determines the premiums for the various types of contracts it offers. The purpose here is not to attempt to make the readers competent actuaries. The purpose is to help the reader gain an appreciation of the differences among the various contracts. As we will see, differences in premiums among the various forms reflect the differing probabilities of payment under the policies, the length of time for which protection applies, and the manner in which the premiums are to be paid.

LIFE INSURANCE PREMIUM COMPUTATION

There are three primary elements in ...

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