Insurance means a business of insuring persons of property. It is a contract between an individual and company. Where the company undertakes or guarantees the individual against a loss. An individual contributes a certain fixed amount which is called a premium. This amount is collected by a thousand people to make a lump sum amount. So in case if the individual suffers a loss this amount is used as a compensation.

There are three main factors for deciding the premium:-
1.Mortality Tables
All insurance companies refer to different mortality tables. A mortality table shows the probability of a person dying in a particular age group. For instance, in 25-30 years age group, the probability might be just two, but this probability would increase for a higher age group of 45-50 years.

2. Expected Surplus
The premiums which are collected by the insurer are invested in capital markets. There is a fixed investment pattern for the policy holder. Out of the surplus earned on the premiums invested, 95% is distributed to the policyholders and the insurance company retains the balance 5%.

If there is more return on the investments , then the premium amount increases. It also depends if the insurer if he gives a compounded or simple interest returns. A compounded return would then increase the premium amount.

3. Expenses
An insurance company incur expenses in the form of commission to agents, office expense, advertising expense, salaries to employees. These expenses are to be managed by the company in the 5% surplus earning which they earn as returns from the investments.To meet the expenses the insurer has to collect more premium