Life insurance rates or life insurance premiums are fixed amounts, taking into consideration the average well being and life expectancy of the insured.
This is the amount that goes forms the corpus fund through which payments are made in case of a loss.
An additional amount is also incorporated in the premium if a double accident benefit or any extra rider is added to the policy.
The rates also differ depending on the amount insured, the period of insurance the modes of payment and the type of policy.
Life insurance rates take into account risk factors, the age at the time purchase, the health of the insured and capacity to pay.
Additionally, interest, administrative expenses, unexpected contingencies and fluctuations are also taken into account.
Using actuarial science, tables are set out that give rates payable for different ages, periods and plans.
As an example, if in a particular area with a population of 10,000 people of a specific age, one death might occur within a year, then the mortality rate of those people at that age would be 0.
01%.
The risk premium charged is $0.
10 for every $1,000.
Depending on the health of the person there is an additional amount payable.
In this way, rates are calculated and premium tables formatted.
Another area that is taken into consideration is the lapse of a policy.
A policy lapses when the premium due is not paid.
Here the administrative costs would increase and added into the premium calculation factor.
Insurance rates also differ according to the mode of payment.
The usual modes of payment are yearly, but premiums may be paid monthly, quarterly and half yearly.
A rebate or incentive is given for the different modes -- yearly premium amount are slightly less than two half yearly payments or four quarterly payments.