Life Insurance FundamentalsQuestion 148 of 315
When the insurer assumes a higher rate of interest will be earned on policy reserves, the effect on the gross premium is generally:
a.Premium can only be set by state law, so no change
b.No change
c.Higher premium
d.Lower premium
Explanation
Interest is one of the three premium factors. A higher assumed interest rate means the insurer expects to earn more on reserves, so less premium is needed from the policyowner. The other factors (mortality and expenses) work in the opposite direction.
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Reviewed by John Zihao Zhang — California-Licensed Life Insurance Agent (CA Dept. of Insurance License #4396095 — verify)