What are three factors that insurers must estimate when setting premiums on whole life policies?

When setting premiums for whole life policies, insurers need to accurately estimate several key factors to ensure they can cover the costs associated with the insurance product while also remaining competitive in the marketplace. The correct answer identifies mortality costs, expenses, and investment return as the three critical components.

Mortality costs pertain to the expected death claims that the insurer will have to pay out. Insurers use statistical data to estimate how many policyholders will pass away in a given period, which directly influences how much premium is needed to maintain solvency and fulfill policyholder claims.

Expenses include all operational costs that an insurer incurs in providing the life insurance coverage. This encompasses administrative costs, marketing, and distribution expenses. Accurately assessing these expenses is vital to ensure that premiums cover not only the risks associated with mortality but also operating costs.

Investment return relates to the revenues generated from the premiums after they are received. Insurers typically invest the premiums collected until claims are made, and they need to estimate a reasonable return on these investments. This anticipated return impacts how much premium can be charged, since it can help offset some of the mortality and expense costs.

While the other answer choices mention various considerations that are important in the insurance industry, they do not specifically address these core factors that