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ASPECTS OF RISK INSURANCE
Premiums and pricing
Guarantees
Premium patterns
Underwriting
Sessions
Exclusions and loadings
Beneficiaries and nominees
Stand-alone and accelerator benefits
Premiums and pricing
Don’t confuse “
rates
” with “
premiums
”. The
rate
is the price paid per unit of cover, while a
premium
is the payment, made on a regular basis (usually monthly). The premium includes the
different rates for all the risk benefits, multiplied by the units of cover for each, plus other costs,
such as policy fees.
Insurance is a contract between the life insured on the one hand and the life insurer on the other
hand. The contract stipulates the rates payable in return for the cover (risk rates). The rates are
calculated over the full term of the contract. In order to calculate the appropriate rate, the insurer
has to take various factors into account, including the age of the insured, and the term of the
proposed contract.
But he also has to include factors based on projections for the future. He has to take a view about
what he perceives his future risk to be, based on current experience and expectations for the
future.
It follows that, should his future claim experience differ dramatically from his current experience
and current expectations for the future, the rates that he had calculated originally would no longer
be able to sustain his risk over the full term of the policy. (For example, an outbreak of a world-
wide untreatable killer disease, that had not been factored into the risk rates).
In such an event the insurer could go under, taking all his policyholders down with him. In order to
protect himself and all the other stakeholders, the standard contract would make provision for an
amendment of rates should the claims experience take a dramatic new direction.
This sounds ominous, especially to a client that is taking out insurance exactly to protect himself
against unforeseen future events.