For group life insurance coverage, what is the basis for determining cost?

In the context of group life insurance, the cost is primarily determined by insurable interest. This concept refers to the relationship between the insurer and the insured, where the insurer has a legitimate interest in the continuation of the insured's life due to a financial loss that would be incurred upon their death.

Insurable interest is crucial in group life insurance scenarios because it establishes a reason for the coverage to exist. Employers, for example, have an insurable interest in the lives of their employees because their financial investment in their workforce could be impacted by the loss of an employee. This communal aspect of risk pooling in group life insurance plays a significant role in determining the premiums charged since costs are spread among a larger group rather than assessed on an individual basis.

The other options do not serve as the foundational basis for determining cost in group life insurance. The age of the policyholder might influence individual premiums but does not apply generally across group policies, as costs are averaged out across groups. Total number of claims can impact future pricing but not the initial cost structure. The premium load factor may cover administrative costs but should not be confused with the basis for determining the overall cost of the group life insurance coverage itself. Understanding insurable interest thus provides clarity on the financial mechanics behind the