Insurance premiums are the amount of money that the policyholder must pay as consideration for the services contracted with the insurance company. Therefore, any type of insurance, be it life, events, automobiles, home… provides in its contract the different premiums to be assume during the period of time in which it remains valid.
What is the premium in life insurance?
When contracting any type of insurance, the policyholder is selecting the coverage that he considers necessary for his safety and peace of mind. The insurance company is the one who offers these coverages and, in exchange for being able to satisfy the necessary demands, requests an economic benefit. This benefit is what defines what an insurance premium is. And both the total amount of each of them and the frequency of payment is stipulate in the signing of the contract, as well as all the coverages to which coverage is give.
How is the insurance premium calculated?
To know how the life insurance premium is calculated, it is necessary to know that the amount of each of them will vary depending on the type of insurance contracted and the coverage to which you want to have access. In this way, the cost will also vary depending on the risks that the company assumes for providing coverage to each insured person in particular. With different factors such as the age of the insure, the probability of suffering an accident, the statistics that are available relate to each sector… and, in addition, adding the internal management expenses, which include administration expenses, costs of processing and other general costs that are divide between all the clients of the company.
To all this, we must add the external management expenses, among which are the benefits that the company wants to receive for each policy, advertising or marketing costs and, also, taxes and additional surcharges, among which are They include the surcharge of the Insurance Compensation Consortium, the surcharge for the Liquidation Commission of Insurance Entities, the fire service arbitration, for fire policies and, finally, the special tax of 6% for VAT exemption.
Insurance premium classes
Insurance premiums are divide into different classes;
- According to the calculation period and the form of payment, among which we can find fractional premiums, installment premiums, annual or single.
- According to the economic cost during the term of the insurance, classifying between a fixed premium, which is one that does not vary in amount throughout the term of the policy, or the variable premium.
- Depending on the risk, with the natural premium, very common in life insurance, which, as it is contract annually, suffers constant growth as the insure increases in age and, therefore, the probability of death. The level premium, the rising premium, and the falling premium.
- Depending on the year in which it is pay, which may be an initial premium, the amount agree to pay once the contract has been sign and for it to come into force, the successive premium, which is the one that will be pay in the successive agree periods and that It may be different from the initial and the advance premium, which is the total computation to be pay at once for the policies contract for several years.
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