Simple Term Insurance Cost

This formula estimates the insurer’s expected payout for one year of coverage by multiplying the chance the insured dies during that year by the benefit paid if death occurs. It works because expected value is probability times payoff: most policyholders do not claim, but the insurer averages that small chance of a large payment across many policies. This gives the pure risk cost before adding expenses, profit, or loading.

Use this when pricing a one-year term life insurance benefit at a basic level, especially for rough actuarial calculations or classroom examples. It is also useful whenever you need the expected claim cost for a single policy over a one-year period.

• Using the premium instead of the benefit amount B in the formula
• Treating q_x as a percentage without converting it to a decimal first
• Forgetting that this gives expected claim cost only, not the final charged premium