18.2 Premium Factors
There are three primary factors involved here.
- Morbidity
- Interest
- Expenses
Morbidity
Morbidity takes into account the likelihood a person will get sick or injured. Statistics from morbidity tables predict the approximate number of people (at specific ages) who can expect to become sick or injured each year as well as predict the duration of the illness or injury. Insurers are aware of these statistics, so they are able to calculate whether a person qualifies for insurance and what premiums they should charge.
Interest
The same as life insurance, a portion of all premiums is invested to earn interest. This is an important element in establishing premium rates. Interest earned can reduce premium costs.
Expenses
Like every business, there are many expenses that need to be paid in the insurance business such as salaries, commissions, employees, utilities, maintenance, supplies, etc. Expenses are taken into account and are included in all premiums to cover costs.
