It is no coincidence to hear that with the subscription of a life insurance , a part of the capital, equal to 10-20% , has been lost . It is not a legend and they are not false myths if several subjects speak of it as something never to be signed, even under torture: ” My father has signed a life insurance policy on 10,000 euros of capital, for a duration of 5 years, and upon expiry, yes is seen to be returned just over 8,000 euros . But how, he said to the insurance company, was it not an alternative method to keeping my savings ? . The result is that money is lost in history.
Of course, history probably did not go quite like this, or maybe yes, what is important to consider is the fact that it is possible to evaluate by hearsay if you do not have the life policy contract that was signed at that time. But to protect ourselves from these unpleasant episodes, in case you have the desire to take out a life policy, one thing can be done: understand which parameters to use to calculate the cost and return of our insurance , highlighting the variability of the premium and of the base prices in relation to market trends. And even if the following calculations and information are not accurate, they have the sole purpose of giving you an idea.
Loss of capital in life insurance: ALL THE BLAME OF THE LOADS!
The costs of the life insurance premium constitute the basic fee to be paid to keep your savings, or at least, this is the primary idea in subscribing to a policy of this type. But it is precisely in this context that the loading of the insurance company enters the scene, which are deducted from the total amount of the insured capital. But what are these loadings that constitute the primary factor of loss of capital?
The charges of the insurance company are the costs that the institution has to face but which by law it is not obliged to declare, or commercial costs, which reduce the paid-in capital. To give a simple and short example, if you took out life insurance before 20002.5% tax must be paid . This means that on a capital payment equal to € 1,000 , you will pay € 25 in taxes which will therefore significantly reduce our capital, actually paid as savings: our € 1,000 becomes € 975.
I PHASE of capital loss in life insurance: TABLE
As shown in the table below, it is easily possible to notice the first phase of loss of the capital paid in the subscription of a life insurance, highlighting the payment of 2.5% of taxes: the capital of 1,000 euros is reduced to 975 euros .
Loss of capital in life insurance: ADDITIONAL COSTS
In addition to the commercial costs, or the charges of the insurance company, which has the payment of 2.5% on the paid-up capital, there are also additional additional costs that are calculated on the sum paid in the ” one-off ” mode, or must be paid only once during the signing of the policy. This additional form of tax constitutes the amount of the costs of issuing the contract or the receipt of the underwriting contract of the life policy which cost between 5 and 10 euros .
Phase II of capital loss in life insurance: TABLE
In the first phase of loss of capital with the subscription of a life insurance it was seen how with a capital of 1,000 euros you get to have 975 euros . That’s not all, as we could read in the previous paragraph: a second sum is subtracted from our 975 euros, the cost of issuing the contract or receipt, equal to about 10 euros. Here in the second phase, the capital becomes 965 euros .
UPLOADS: WHAT ARE THEY FOR?
Seen in this way, and according to the tables above, the loading of insurance companies is quite expensive, and if they are obligatory for something they will have to serve. But to what? Uploads constitute the commercial costs that the insurance company must incur to pay its collaborators , or the commercial network, in addition to the fact that the greater the success of the brand to which the company belongs, the greater these costs, which directly affect on the capital paid in by its customers.
On the basis of studies and statistical analyzes carried out by Ivass , the Insurance Supervisory Institute, the average amount of the cost of loading for a traditional life insurance – also in the solution that provides coverage in the event of death and in the event of of death – is about 12% . This means that for a payment of 1,000 euros , we will find ourselves holders of a capital amounting to 880 euros. Precisely for this reason on the Italian territory there is no culture of underwriting the type of life or death insurance policy, precisely because those who signed it at the time with the idea of keeping their savings obtained a reduction in the recovered annuity. at the end of the expiry of the contract.
LOADS and LIFE INSURANCE: HOW TO MAKE MONEY?
But can it also be earned? Let’s see. By subscribing to life insurance in the event of death, the company in the event of death must pay the beneficiaries, indicated at the time of signing the policy, a capital envisaged as insurance coverage . From this point of view it is possible to have a gain, which is certainly not enjoyed by the underwriter of the insurance, who must be dead, but the period of subscription of the policy must also be evaluated, in which it is necessary to pay a premium. The lump sum paid in the event of death, very often, has already been paid in full to the insurance company with the premium, or also called pure premium .
The pure premium is the sum of money that the insurance company must keep to guarantee the payment of the coverage in the event that the event for which the subscriber is insured occurs. On the basis of this sum, calculated by evaluating factors such as the age, the smoking level, the work activity of the insured person, the total premium is constituted, subsequently deferred in annual installments to be paid. The greater the risk that events for which you choose to subscribe the life policy will occur, the greater the premium required by the insurance company, which must necessarily recover the sum that runs the risk of having to pay back as soon as possible.
Where the AWARD ends: CALCULATION OF PERFORMANCE
The premium also constitutes a sum of money which, like the quota requested with the loading, is not invested and does not constitute part of the capital that must be paid to the insured party. The insurance company buys government bonds and constantly re-evaluates the amount left in our insured capital, or the 965 euros in our example, in relation to the return on the insurance fund. Our insured capital, now down to 965 euros, is revalued year by year based on the technical rate and the retro-cession rate , which are the fundamental parameters in calculating the ” gain ” of the insurance company.
On the basis of the retro-cession rate, there is the principal amount that the insured party recovers, in relation to the annual revaluation, while the remainder is the principal amount remaining to the insurance company. This means that if the retrocession rate is 90% and if the capital insured with the subscription of the life policy in the event of life has a trend of 5%, the capital will have an annual revaluation of approximately 4.5% .
Through the technical rate – which amounts to about 2.5% – you have the exact amount of the capital that is recognized with the reimbursement , in case of expiry of the contract, or in case of compensation, if you have signed a policy life in case of death. Technical rate therefore constitutes the sum of money that the insured party has guaranteed in the event that the events for which he is insured occur and the same amount is established in the policy contract at the time of signing.
COST OF LIFE INSURANCE: how is it calculated?
Above we saw how to calculate the return of our life policy, how to earn despite the loadings applied to the capital, the amount of capital that actually remains in our life policy and also the percentage of revaluation of the sum insured in relation to the trend of the market and earnings of the same insurance company. But exactly how much does life insurance cost us? How is it possible to make a quick calculation and which parameters to use to get an idea of the costs? It is not difficult, since we have already clarified the technical rate which amounts to 2.5% and the insured capital, which we can easily find on the contract signed in our policy, so it is possible to go and check also at this moment, in the in case you have already signed one.
After having checked the sum of insured capital and the expiry date of the contract, it is also important to evaluate the amount of the premium that is paid annually. If the amount is fixed, there are no particular problems in the calculation. If, on the other hand, the request for the premium has a variable amount based on the annual revaluation adopted by the insurance company, it is necessary to calculate the parameters and methods with which the premium is established . To better understand, look at the table below which highlights the main steps to calculate the cost of your life policy:
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