What is a Life Insurance Policy Fee?
A Policy Fee is a common practice among most life insurance companies. For example, an insurance carrier may impose a premium on the policy holder – which differs according to the insured’s age and gender, as well as the type and amount of insurance that a person has. It will also differ substantially, depending on whether the person is a smoker or a non-smoker. Oftentimes, the policy premium can range from $15 per thousand of coverage, plus a policy fee of $35.
However, when determining the premium cost of a life insurance policy, there are several factors that actuaries must take into consideration. In most cases, life insurance rates are expressed in units per $1,000 of the policy’s face amount. Therefore, the total premium amount will be the rate per $1,000 of coverage multiplied by the number of units that are being purchased. (There is typically an additional policy fee that will also be included in most life insurance premiums.)When calculating the premium rates, an insurer will also assume the following criteria:
- All premiums are paid at the beginning of the year in advance
- All premiums are invested and earn interest
- All claims are paid out at the end of the year
The factors that go into calculating the life insurance premium rate can include the following:
- Mortality Cost / Mortality Predictions – This has to do with the average number of deaths in a given year at a particular insureds’ age.
- Insurer’s Expenses – The insurer’s expense factors are expenses that the insurance carrier will incur when issuing an insurance contract, such as licensing and fees, premium taxes, administration, overhear, and record keeping.
- Investment Return – This factor takes into account the interest that is earned off of the insured’s premium that was invested.
- Reinsurance – Reinsurance is the process where an insurer will transfer all or part of a risk to another insurance company in order to share a risk.