For a life assurance policy, which factor is prioritized first in your cost assessment?

In assessing the cost of a life assurance policy, prioritizing mortality risk is essential because it directly affects the insurer's potential claims liability. Mortality risk refers to the likelihood of death occurring within a specific period, impacting the policy's pricing and profitability. Insurers conduct thorough analysis and statistical modeling to estimate life expectancy based on various factors, such as age, health, and lifestyle of the policyholders. By understanding mortality risk first, insurers can determine the appropriate premiums to charge, ensuring they collect enough revenue to cover future claims while maintaining profitability.

While investment returns, policyholder demographics, and market conditions are important considerations in the overall assessment of a life assurance policy, they are often influenced by or secondary to the fundamental nature of the insurance product itself—providing a payout upon death. Therefore, understanding and calculating the mortality risk is crucial in establishing a foundation for the cost assessment.