Life & Health Insurance Practice Exam 2026 – Your All-in-One Guide to Exam Success!

To determine the gross premium, loading is added to the net single premium. The net single premium reflects the pure cost of insurance coverage, calculated based on the present value of future benefits, considering factors such as mortality rates and interest. However, it does not account for administrative expenses, profit margins, or contingencies that the insurer must cover to remain solvent and operational.

Loading includes these additional costs such as administrative expenses, commissions, and reserves for risk associated with unfavorable conditions or unexpected claims. By adding loading to the net single premium, the insurer arrives at the gross premium, which is the total cost that policyholders must pay for their insurance coverage. This ensures that all necessary expenses and risks are accounted for, allowing the insurer to provide coverage while maintaining financial stability.

The other choices, while relevant to the overall understanding of premiums, do not directly contribute to the calculation of the gross premium in the way that loading does. For instance, interest may affect the present value calculations, and mortality relates to the likelihood of claims but neither contributes additional costs to the premium computation directly like loading does. Cash value pertains more to permanent life policies and isn't part of the premium structure.