How Insurance is priced?

How Insurance is priced?

There are three factors affecting the price of insurance:

1.     Risk costs

This reflects the risk that the insured event will occur during the year, and that the benefit will have to be paid. For example, the mortality risk is the risk that the life insured will die during the policy year. The mortality cost is the actual cost of that risk for the year. As the life insured gets older, his or her risk of dying in that year increases, so the insurance company is more likely to have to pay a death benefit during that year.

Similarly, morbidity risk is the risk that the life insured will become sick or disabled during the policy year.

 

2.     Administration expenses

These are expenses of running an insurance company, including salaries, wages and commissions, rent, office administration, etc.

 

3.     Investment returns

The insurance company invests the collected premiums until it has to pay out the insurance benefits. The return on those investments reduces the cost of insurance.

Profits: are realised if premiums collected plus investment returns  exceeds mortality costs and administrations expenses

 

We at YourInsuranceGuy.ca are experts in explaining the life insurance contract, beneficiary definitions etc etc. Please feel free to contact us at aman@yourinsuranceguy.ca or at 1 416 509 2540. Please visit us for a no obligation quote or advice.

 

 Primary and Contingent Beneficiaries

A Primary Beneficiary is the first named beneficiary and will receive the policy death benefit from a life insurance contract if still alive when the life insured dies. However, sometimes the beneficiary dies first, or dies with the life insured. Consequently, it is prudent to name a Contingent Beneficiary as a secondary beneficiary to receive the death benefit if the named beneficiary predeceases the life insured. A spouse is often the named beneficiary of a policy and the children and grandchildren as “contingent beneficiaries.”

 

 

Life Insurance protects your estate from a tax liability

Life Insurance is a tax free benefit to the beneficiary and hence can provide liquidity to your estate and the tax free benefit could offset tax liabilities in the future. When the first spouse passes away, there is a tax free roll over of assets to the surviving spouse. However, when the second spouse passes away, there is a roll over to the next generation and that could result in a tax liability. Therefore, assets like stocks, bonds, investment real estate is subject to a capital gain tax where the gain from the initial cost base is only taxed by 50%…

 

 

Advantages of a named Beneficiary in a Life Insurance policy

  • The death benefit moves outside the deceased’s estate; therefore, it is not included in the value of the estate when calculating the probate fees….The death benefit moves quickly and directly to the beneficiary ( by law, within 30 days of proof of death), whereas estate funds could take six months to several years to be paid….

 

Life Insurance Contract : features and requirements

Requirements of a Standard Insurance Contract (Standard legal Contract)Need for a Valid Offer and Acceptance: The client initiates the insurance process by submitting the application. The insurance company decides whether it will offer the policy to the client and what premium will it require.  The client has the option of accepting or declining the offer.

 

Change of Beneficiary

The policy owner could change the beneficiary to the policy. There could be various reasons that could result in this decision to change the beneficiary. It is, however, important to note that the beneficiary to the policy is one who has an established insurable interest. In simpler terms, the beneficiary of the policy should be having a negative financial impact upon the death of the person insured. The change of beneficiary is to be done either by a signed letter to the company or by completing A Beneficiary Change Form provided by the insurance company.

 

Prepared by:  Aman Kapur

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