The insurance premium is one of the central elements of the contract since it is the price that the insured pays for the coverage he receives. Its value will depend on the type of risk insured and is always fixed in advance by the insurance company. It must be sufficient for the insurer to face the insured risk, calculating that not all the insured will need the coverage, that is, statistically, there is a probability that it will happen or not.
How is it calculated?
The main part of the cost is called a pure premium , which means the real cost of the risk assumed by the insurer, regardless of its management expenses. As other expenses are added, the premium is called in other ways, inventory premium (adding administration costs), rate premium (adding external management expenses) and finally the total premium in which taxes are included and other concepts such as the amounts allocated to the insurance compensation consortium.
But the fundamental part is the first, in the case of Life Insurance, two variables are taken into account. On the one hand, of biometric tables that reflect the probabilities of death and survival of a group of people based on age. In them, you can see the number of people who exceed a certain age. To these are added the probabilities , taking into account the above tables, the probabilities of death or survival that are necessary for the calculation of the premium are calculated. And combining them of course the amount we want to insure. With all this and through a complex formula, the premium will remain. All of this makes it logical that the younger, the cheaper life insurance is because the chances of survival are much higher.
And how do you pay?
The most traditional payment formula is that of the periodic premium . It is paid in regular installments for the duration of insurance. If the life insurance cap is until a certain age is reached, until its validity it will be charged annually. But also on many occasions it is allowed to divide into shorter periods, it is the so-called fractional premium , which allows the insured to pay monthly or quarterly, for example, his insurance premium.
On the opposite side are the single premium insurance. Through them, through a single payment the entire premium is paid for the entire duration of the insurance.
The first payment is made at the time of contracting the insurance. The following payments will be made at the expiration of the policy, allowing, in the event that it is not paid, to have a month of grace to make the payment of the premium. As soon as the payment of the premium is made, the insurance coverage will take effect in 24 hours.
The regulation establishes a maximum term of six months from the expiration date so that the insurer can demand from the policyholder the payment of the premium for the current period, after which, without mediating the judicial requirement, the contract will be terminated automatically.