Mortality expense is commonly described as what?

Mortality expense is commonly described as what?

• A. Administrative fee
• B. Cost of insurance
• C. Investment management fee
• D. State premium tax

Answer: (B)

Mortality expense is the charge that covers the insurance protection built into the product. It represents the insurer’s expected cost of providing a death benefit and the risk that death could occur sooner or later than anticipated. In other words, it’s the price for having life-contingent protection embedded in the contract, which is why this component is described as the cost of insurance. This is different from an administrative fee, which pays for paperwork and client services; from an investment management fee, which pays the fund manager for handling the investments; and from state premium taxes, which are taxes assessed on premiums. The cost of insurance focuses specifically on the insurance protection component—the mortality risk the insurer assumes.

Mortality expense is the charge that covers the insurance protection built into the product. It represents the insurer’s expected cost of providing a death benefit and the risk that death could occur sooner or later than anticipated. In other words, it’s the price for having life-contingent protection embedded in the contract, which is why this component is described as the cost of insurance.

This is different from an administrative fee, which pays for paperwork and client services; from an investment management fee, which pays the fund manager for handling the investments; and from state premium taxes, which are taxes assessed on premiums. The cost of insurance focuses specifically on the insurance protection component—the mortality risk the insurer assumes.