1. The probability of the insured event occurring
It is shown by mortality tables in life insurance and
morbidity tables in health insurance. The part of risk premium can be
calculated by multiplying the sum assured with relevant information in these
tables.
2. The time value of money
The time value of money through rate of interest is
the second factor taken into account for the calculation of premium. Net
premium can be calculated by deducting interest component from risk premium.
3. Loading to cover expenses, taxes, profits and
contingencies
Tabular premium can be calculated by adding all these
office expenses to net premium.
4. The benefits promised