How is the premium for a different payment frequency determined?

The premium for a different payment frequency is determined by multiplying the annual premium by the modal factor. This approach acknowledges that premiums may differ based on how frequently the payments are made—monthly, quarterly, semi-annual, or annual. The modal factor is a coefficient that adjusts the annual premium to account for the cost implications of different payment frequencies. For instance, more frequent payments may result in higher overall premiums because of administrative costs and the insurer's cash flow considerations.

When you multiply the annual premium by the modal factor, you accurately reflect the additional cost associated with more frequent payment, enabling the policyholder to understand the total they will be required to pay based on their chosen payment frequency. This calculation ensures that the premium corresponds not only to the coverage provided but also to the administrative costs of processing multiple payments throughout the year.

Understanding this calculation is crucial for life insurance agents and their clients, as it helps in budget planning and allows clients to make informed decisions regarding their premium payment preferences.