The previous discussion of rate making explains the derivation of net premiums, which, when interest is added, are sufficient to pay the assumed benefits under the life insurance contract. Furthermore, the policy should contribute to profit or surplus. The gross premium for "traditional products" is the amount that, when interest is added, will be sufficient to pay both benefits and expenses. It is the gross premium that policyowners pay.

Gross premium may be regarded in either of two ways. The gross premium is the net premium plus an amount called loading. Alternatively, the gross premium is an amount, independent of the net premium, found using realistic factors for mortality, interest, expenses, contingency allowances, and profit. The former method is typically used to find gross premiums for participating policies; the latter is typically used for nonparticipating policy premiums. Loading in participating policies, usually greater than is likely to be needed, includes an amount the company expects to return to the policyowner later as a dividend.

These three considerations guide the company in setting its loading:

This chapter describes the manner in which a company attempts to fulfill these objectives and to resolve the conflict that may exist among them.