Expenses

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Expenses or "loads" are charges for the design, sale, service, and administration of insurance policies. These charges include state premium taxes, federal DAC taxes, underwriting expenses, carrier overhead for actuarial service and product development, and sales and service fees.

These expenses are charged to policy holders as a percent of the premium (premium-based loads), as a fixed charge (fixed expense), or as a percent of the value of the policy (asset-based loads). In addition, products for pools of individuals may also impose onerous back-end charges for surrendering the policy during the initial 10 to 15 years.

Large public companies purchase insurance differently than the average "retail" buyer. Because these large transactions and large groups of policies cost less to sell and administer, carriers typically reduce institutional premiums to reflect volume discounts and economies of scale.

Because institutional and experience-rated products are maintained longer, are more well-funded, and are larger, they have lower expense ratios than products for pools of individual buyers. In addition, institutional and experience-rated products assess more reasonable charges or no charge for early surrender.

For information about institutional pricing and institutionally-priced products, contact us for the name of a licensed Insurance Banking Center near you. Or, click here to learn more about the impact of interest earnings on policy pricing, or click here to go directly to the Policy Pricing Calculator (PPC).