APPENDIX Calculation of Life Insurance Premiums
Our discussion of life insurance would not be complete without a discussion of how life insurance premiums are calculated. This section discusses briefly the fundamentals of premium calculations and policy reserves of life insurers.1
Net Single Premium
Although most life insurance policies are not purchased with a single premium, the net single premium forms the foundation for the calculation of life insurance premiums. The net single premium (NSP) is defined as the present value of the future death benefit. It is that amount, which together with compound interest will be sufficient to pay all death claims. In calculating the NSP, only mortality and investment income are considered. A loading for ...
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