How Premiums Are Calculated:
The most common way of paying for Employee benefits is to pay a calculated monthly premium to an insurance company. Out of these premiums claims, administration, expenses and taxes will be paid. At the end of the policy year(s) a renewal calculation is made and that will provide your new estimated premium for the next policy period. Premiums can be either higher or lower than the prior time due to the actual claims and administration fees.
If your claims are actually higher than anticipated your next year’s premiums will increase. Conversely, should you claims be lower than anticipated your next year’s premium should decrease.
The bottom line is a typical benefit plan is “you pay premiums based on what is paid out to your Employees in claims.”
Benefits such as Life Insurance, Long Term Disability and Out of Country should be insured in a typical manner. Premiums should not be based on losses rather the entire book of coverage the insurer provides.
The insurers must be totally accountable for each and every expense and your Broker must be willing to clearly divulge their revenue.