Rate Making in Life Insurance

The discussion of rate making thus far has been limited to property and casualty insurance. Rate making is also important for life insurance companies, especially given the long-term nature of many life insurance contracts.

Life insurance actuaries use a mortality table or individual company experience to determine the probability of death at each attained age. The probability of death is multiplied by the amount the life insurer will have to pay if death occurs to determine the expected value of the death claims for each policy year. These annual expected values are then discounted back to the beginning of the policy period to determine the net single premium (NSP). The NSP is the present value of the future death ...

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