What would be an expense factor in an insurance program?

• A. Administrative costs
• B. Mortality costs
• C. Surrender charges
• D. Interest costs

Answer: (B)

In pricing an insurance program, an expense factor is any cost the insurer must cover to provide the policy. Mortality costs reflect the expected payout tied to death benefits, calculated from mortality tables and the policy mix. This represents the insurer’s risk-based expense—the money that must be set aside to pay claims when death occurs. Since the other options describe separate elements (administrative operating costs, surrender penalties for early cancellation, and the investment-related interest earned or assumed), mortality costs are the expense factor tied directly to the insurer’s primary risk of paying benefits.