Calculating Premiums Loadings


A loading is an extra charge added to a premium because the insurer considers the risk to be higher than normal. It is a percentage increase on a base premium.KEYWORDS


Loadings increase the cost of the premium.


Examples of factors that can trigger a loading on a premium: Motor Insurance


House Insurance


ґ Young or inexperienced driver ґ High-value vehicle ґ Penalty points


ґ Located in an area prone to flooding or burglary


ґ No burglar alarm or security features Worked Example: Loading On A Motor Premium


Ciarán is applying for comprehensive car insurance. His base premium is €800. He has 6 penalty points on his driving licence for speeding offences, so the insurance company decides to apply a 50% loading to Ciarán’s premium.


Workings Base premium


Loading (50% of €800) Premium after loading


€800 x 50% €800 + €400


€


€800 €400


€1,200


Calculating Premiums


CLASS ACTIVITYINTRO ACTIVITY Key Skill: Calculate an insurance premium using loadings and reductions.


1. Name two factors that would result in a loading being applied to a motor insurance premium. Explain why they increase the risk of cover for the insurer.


2. A driver’s base premium is €600. The insurance company applies a 30% loading because they live in a high-risk urban area. Calculate the cost of the premium after the loading is applied.


3. Would you expect the owner of a house that has a lot of expensive jewellery in it to pay more for house and contents insurance than someone who doesn’t have any jewellery? Give a reason for your answer.


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STRAND 1


CHAPTER 6: Personal insurance


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