4.1.2 Interest Factor
One individual's premium payment of $50 per month will not generate much interest if invested; however, when 1,000 policyholders pay $50 per month, for example, and the total of those funds is invested, that $50,000 would most certainly generate a considerable amount of interest. This ability to generate additional funds through investment and interest accumulation is what helps to keep premium payments lower for the majority of insureds.
Net Single Premium = Mortality Cost - Interest
Gross Premium = Net Single Premium + Expenses
Actuaries assume that a specific rate of interest will be earned throughout the life of the policy and that premiums are earned annually, in advance.
