What Is a Life Insurance Premium?

Life insurance premiums, pure premiums and additional premiums. The former is used for the payment of insurance premiums; the latter is used for the expenses of the insurance company's business operations. The sum of the two is the business insurance premium, also known as the gross premium.

Life insurance premium

The cash value refers to the amount returned by the insurance company to the policyholder when the policyholder cancels the insurance or the insurance company terminates the insurance contract. Under normal circumstances, an insurance company determines the insurance premium rate (that is, pricing) based on the probability of an insurance accident. The higher the accident probability, the higher the insurance premium rate, otherwise the insurance premium rate is low. However, in life insurance, because the payment period is generally long, as the insured person's age increases, the possibility of death will become higher and higher, and the insurance premium rate will gradually rise until it approaches 100%. It is unbearable for policyholders, and insurance has lost its meaning.

For this reason, insurance companies often adopt the "average insurance premium" method in actual operations. Through mathematical calculations, all insurance premiums that the insured person needs to pay are evenly distributed throughout the payment period, so that the insurance premiums paid by the insured person every period are Similarly, to put it simply, pay more when you are young and less when you are older. On average, you pay as much each year. The probability of death of the insured when the insured is young. The insurance premium paid by the insured is more than actually needed. The overpaid insurance premium will be accumulated year by year by the insurance company. The probability of death is high when the insured is old, and the insurance premium paid by the insured is insufficient. In order to pay the current indemnity, the shortfall will be made up by the premium paid by the insured when he is young. This part of the overpaid insurance premiums and the interest it generates are rolled over each year and accumulated, which is the cash value of the policy, which is equivalent to the "savings" of the insurer in the insurance company.