Quotation of Rates

Before proceeding further, however, it is worth explaining how premium rates are quoted. The normal practice is to quote an annual rate of premium for a given sum assured, and rates are normally compared in terms of the cost per £111,000 sum assured. In the case of contracts providing an annual benefit rather than a lump sum, rates are compared in terms of premium per £111,000 of annual benefit provided.

Because most statistics show that women live on average four years longer than men, most life insurance companies quote lower premium rates for women. The normal practice is to have only one set, or table, of premium rates - those applicable to men - and to quote the premium rate for a woman as that applicable to a man three or four years younger. Thus, a 30-year-old woman would normally be accepted at the premium rate applicable to a man of 26 or 27. At the younger ages, the difference in rates produced by this method is not large, but from the age of 40 upwards it is significant.

The majority of life offices quote premium rates on the basis of "age next birthday", and this is the basis used for the rates quoted throughout this website. A few offices use an "age attained" basis, and if one is comparing premium rates then this is important as one would expect the "age next birthday" rate for a man now aged 29, i.e. the premium rate for a 30-year-old, to be comparable with the "age attained" rate for a managed 29. At the older ages in particular, half- and quarter-years may be taken into account in quoting premiums.

The annual premium rate is calculated on the basis that the company receives the annual premium in advance, i.e. at the beginning of each policy year. Payment of premiums at monthly or quarterly intervals means a loss of interest to the office (because it is receiving the money later) and extra expense. Quarterly or monthly premium rates are therefore slightly higher than annual rates; with most companies, monthly payment involves an extra cost of 3-6%.

Regardless of the size of the policy and the amount of the premium, most companies now make a fixed annual charge on each policy, known as a policy fee. This may range from £13 to as high as £1112 p.a. on some policies. The policy fee is to cover the unavoidable office and administration costs, which do not vary much whatever type of policy is involved. In the examples quoted throughout this website, the policy fee is always included in the quoted rates.

Further Information: Quotation of Rates

Cost of the Policy

The disparity between the cost of protection and investment-oriented contracts mentioned on p. 21 will be reiterated throughout the next two sections. Since the vast proportion of the premiums on any participating, or even non-participating, policy aimed at producing a capital sum will be devoted to investment rather than to providing life cover, the cost of a given sum assured for an endowment policy of a given term does not vary greatly according to age.

For example, a with-profit endowment policy for a given sum assured over 15 years would cost the same at 30 as at 20, only 2-3% more... see: Cost of the Policy

Of interest