Determinants of Number of Factors in Business Insurance Premiums

In the Life Insurance business, the risks faced by each individual (Insured Party) moved or transferred to the Party Insurer, in this case is the Life Insurance company, which agreed to indemnify certain amount mentioned in the policy contract if the risk is occurred on the insured party. Previously Insured Person will give some money in a certain amount to the Insurer on a regular basis (premiums) to cover the risks they face. Before determining the amount of premiums that must be paid by the Insured Person, Life Insurance companies must consider several factors.

 
Factors to consider in determining the amount of premiums in life insurance business, namely:

   1. Possible losses
   2. The value of any loss
   3. Administrative costs required to run a business, such as collecting premiums from each member to measure losses and pay claims etc.
   4. Threshold errors that may arise when predicting losses
   5. And, other factors such as financial, health and social factors.
A life insurance company must consider all these factors, so avoid the disadvantages, such as: determining the premium amount is smaller than it should.

 
Not All Risks Can Insured
Life insurance business is nothing but share. It aims to spread the losses suffered by all members of the group who face the same risk.
Insurance companies act as a representative, to manage the funds collected on behalf of the community group. Insurance companies must also be set in such a way that neither party feels aggrieved.
Insurance companies here should know that not all risks can be insured. A risk can be insured if:
1. Allows for Insurance companies to calculate financial losses.
For example,
- Someone who has no income and can not afford the premiums can not buy life insurance.
- Not possible to insure something that has no economic value. In this case, Life Insurance companies will not likely be able to measure the financial risks. Or premium to be paid by one person in the group is very large, so it is too expensive.
2. There are several types of the same risk.
For example,
- In a country which has only small amounts of sea transportation, marine transportation insurance offerings will only cause financial difficulties for insurers.
In this case, there are not many people who have the same risk, so that the funds collected (premiums) will not suffice.
3. Economic value or life of the insured and the risks borne by insurers have an interest (insurable interest).
Insurable interest is a requirement contained in an insurance contract which states that a person will suffer losses as a result of the death of other members, and the amount of losses is adequate to be used as compensation.
For example,
- A husband and wife have insurable interest between them.
- Partner in the business has an insurable interest by the debtor.
In this example, means that a person will bear the loss arising from the death of another person.