How life insurance premiums are determined

Life insurance premiums are calculated based on a set interest rate.

What is the "expected interest rate"?
Insurance companies set aside a portion of your premiums to cover future claims.
The accumulated insurance premiums are invested to the benefit of the policyholder.
Insurance premiums are discounted based on the expected profits that can be earned through this investment.
This discount rate is called the assumed interest rate.

If the investment performance is good and the investment can be made at a higher interest rate than the planned interest rate, a surplus will be generated and dividends will be paid to insurance companies that offer dividends.
However, if the investment interest rate falls below the target interest rate, it will put pressure on the insurance company's financial position.


The expected interest rate is
It is classified into three expected rates: ① expected mortality rate, ② expected interest rate, and ③ expected expense rate.

1. Expected mortality rate
Mortality rate is the proportion of a large number of people who die in a year.
Based on past statistics, we predict the number of deaths by gender and age.
We calculate the premiums necessary to cover future insurance claims.
The mortality rate used in this calculation is called the expected mortality rate.

② Expected interest rate
Insurance companies anticipate a certain amount of investment income from asset management and discount insurance premiums accordingly.
This discount rate is called the assumed interest rate.

③ Planned project expense rate
Insurance companies incorporate the costs of running their business into their insurance premiums.
This ratio is called the planned expense ratio.


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