Mortality tables indicate the number of individuals within a specified group (e.g. males, females, smokers, nonsmokers) starting at a certain age, who are expected to be alive at a succeeding age. These tables indicate to a life insurance company the natural premium for an individual applying for life insurance.
Natural premium is the amount of premium that must be collected from each member of a group composed of the same age, sex and risk in order to pay $1,000 for each death that will occur in the group each year.
Since premiums are paid before claims are incurred, insurance companies invest the money in an effort to earn interest. This interest is a primary factor in lowering the premium rate.
Using the cost of mortality and reducing that cost to account for interest income, the insurance company has enough to pay claims. However, it does not have any money to pay operating expenses. The premium, without operating costs factored in, is the “net premium.”
The insurer then adds the cost of operating the company (called loading) to the net premium. Another way to view this formula is "net premium plus loading" add up to "gross premium."