Life Insurance 07. Modal Factor

Question 1

1. Why do we have to pay more via these MODAL FACTORS for life insurance?

Answer 1

Life Insurance is a PRE-PAID Policy, which means you are paying now for the next year (or quarter or 6 month depending on payment schedule). A big part of how a life insurance company functions is to take the premium now and invest part of it to offset future claim payments.

Question 2

2. The MODAL FACTORS simply reflect the:

Answer 2

loss of income from investment that the carrier forgoes by premiums not being received. For example, if you pay $1000 up front, the carrier can invest part of this to make an additional 4% conservative.

Question 3

3. If you pay $500 for the first 6 months, to offset the 6 months investment income on the second payment:

Answer 3

the insurance company charges you the MODAL FACTOR.

Question 4

4. The monthly payment cycle means that they can only invest:

Answer 4

1/12th of the premium amount for the first month and 2/12ths in month 2, etc.
This figures into the 5% penalty.

Question 5

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Answer 5

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