Question 84

Dividends are not a component of determining policy premiums.

Dividends are not considered when calculating policy premiums, as they are typically a return of surplus to policyholders and not a direct cost or factor in premium determination.

A) Dividends.

Dividends are payments made to policyholders from the insurer's surplus and are not part of the calculation for setting policy premiums. They represent a distribution of profits rather than a cost incurred by the insurer.

B) Insurer expenses.

Insurer expenses are a key factor in determining policy premiums. These include administrative costs, operational expenses, and other overhead that the insurer must cover to provide coverage.

C) Investment return.

Investment return is also a critical component. Insurers invest premiums to generate returns, which can help offset costs and influence the overall premium rates charged to policyholders.

D) Mortality cost.

Mortality cost is essential in calculating premiums, particularly for life insurance. It reflects the risk associated with the insured's lifespan and is directly tied to the likelihood of claims being made.

Conclusion

Dividends are excluded from the components that determine policy premiums, as they do not reflect the costs necessary to provide insurance coverage. In contrast, insurer expenses, investment returns, and mortality costs are all integral to establishing premiums, making them necessary factors for consideration.