Question

What components must whole life insurance premiums cover?

A) Cash values and mortality costs
B) Mortality costs, expenses, and the savings amount
C) Net insurance, mortality costs, and expenses
D) Cash values, net insurance, mortality costs, and expenses

Answer 1

The correct answer is option B. Whole life insurance premiums must cover mortality costs, expenses, and the savings amount. These components ensure that the policyholder's payments fund their death benefit, the insurer's operations, and contribute to cash value accumulation.

Step-by-step explanation:

Whole life insurance premiums are designed to cover several key components of the policyholder's agreement with the insurance company. These components include the mortality costs, which account for the risk of death and therefore the cost of providing the death benefit, expenses which cover the insurer's operating costs, and the accumulation of cash values that serve as a savings component within the policy.

Based on these factors, the correct answer is B) Mortality costs, expenses, and the savings amount. This structure ensures that the average person's payments into insurance over time sufficiently cover their claims, the insurance company's operational costs, and potentially provide room for the company's profit margins.