When determining the performance of a life insurance policy, there are four components to take into consideration, which are directly related to the actual premium you pay.
The premium you pay on your life insurance policy may fluctuate from year-to-year if any of these four components change; they are mortality, administrative expenses, interest rates and persistency.
Mortality Experiences Improves or Worsens
A change in mortality doesn’t occur very often but has a dramatic effect when it does happen.
Expenses Grow or Are Reduced
Administrative costs include all the operating costs it takes your life insurance company to operate. Increases or decreases to this figure could not only affect the company, but also your premium.
Interest Credits Rise or Fall
Out of all the components, this one changes fairly frequently. Depending on what type of policy you have, this frequent change could have a small to large influence on the premium you pay.
Persistency Increases or Decreases
This figure is determined by the success or failure of your life insurance company. If they keep policies from lapsing, it will benefit both the company and your policy. But, if most of their policies lapse at an early stage, your policy and the company could see repercussions.
Your premiums may potentially be reduced if:
· Mortality experiences improves
· Expenses drop
· Interest rates rise
· Persistency is stable
Conversely, your premium may potentially increase if:
· Mortality experiences worsens
· Expenses increase
· Interest rates decrease
· Persistency is negative
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