California Life and Health Insurance Practice Exam

The component of life insurance premium rates that is impacted by an insured's age and gender is mortality. Mortality refers to the statistical likelihood of death within a given timeframe and is a fundamental factor that insurance companies consider when setting premiums.

As a person ages, the risk of death generally increases, which directly correlates with higher mortality rates. Therefore, older individuals typically experience higher premiums because they are statistically more likely to pass away during the policy term. Additionally, gender plays a role in mortality since statistical data often shows differing life expectancies between males and females. For example, females generally have a longer life expectancy, leading to lower mortality rates for women compared to men. This differentiation in risk is reflected in the premiums charged for life insurance policies.

Other components such as administrative expenses, investment return, and underwriting profit are influenced by different factors. Administrative expenses cover the costs incurred by the insurance company to manage the policy but are not directly linked to the insured's age or gender. Investment return relates to the returns on investments made by the insurer with collected premiums, which is not dependent on individual policyholders' characteristics. Underwriting profit involves the overall profitability derived from the difference between premiums collected and claims paid, and while it may encompass mortality considerations broadly, it