Multiple choice

The net premium will be

  1. less than the risk premium

  2. more than the risk premium

  3. calculated by adding expenses to the risk premium

  4. more than the pure premium
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A Correct answer
Explanation

A net premium is the premium calculated on the basis of the valuation assumptions to provide the contractual benefits at outset. Its calculation only allows explicitly for interest and mortality. Thus, the net premium covers the risk factor as well as interest earned on investment of fund by the insurers. Net premium is always less than the risk premium.

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