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4 Factual Determinants of Insurance Premiums

Without a shadow of a doubt, insurance is an important mechanism that helps individuals, states and the nation in general. You should or could have maintained one or more policies because of the peace of mind, confidence and security against financial losses offered by the insurance. So let me ask you this question. Have you ever bothered to know the cunning prize you paid annually to Underwriters, whether it is reasonable or not? The purpose of this article is to bring you to the fore and be acquitted with the composition of the prize you paid.

Risk premium: in any case, the insurance is focused on risk and, in order to adequately assess a risk, the underwriter must know the degree of exposure of this property to a particular risk. Therefore, the part of the premium assigned to the risk element of the hedge is called the risk premium which represented approximately 50% of the total premium.

Charging of expenses: based on the literary meaning of expenses. This is the breakdown covering insurance companies’ expenses such as overheads, lighting and heating, rents, staff salaries etc. As a conservative measure, this will represent approximately 25% of the premium paid to insurers.

Loading of profits: insurance companies like any other company operate according to the profit center principle. To this end, they are in business to make a growing profit on an annual basis. Born from this fact, the subscriber took into consideration the collection of the prize. The profit element is approximately 15% of the chargeable premium.

Emergency loading: since you are fully aware that the financial market is stunned and highly volatile. And to make matters worse, here comes the problem of the global economic collapse that has devastated the whole world. Guess what, the insurers act like a seer (prophet), that is, they have subjected their activities to reasonable predictability. The part of the premium used to cushion the effect of bad wealth or unfavorable years of activity is called emergency loading.

Here you are, ‘I’m sure I’m no longer a beginner on the factors that make up the office reward. Have a nice day and see you again, my insurance intelligence is my concern.

by Adewale Olofinnika

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