We are dedicating here a complete file on the calculation of the payday loan insurance on capital remaining due and help you to better understand the technique used by the actuaries of the different companies.
The different modes of pricing
First of all, know that there are three possible modes of pricing:
- Depending on the payday loan. This is the most common technique for calculating premiums and is usually found on mutualized contracts offered by banks. In this case, the contribution does not depend on the borrowing rate.
- According to the capital remaining due. This is generally the method that companies use for delegation insurance contracts. The loan rate then has a direct impact on the contribution.
- Based on a single premium. This method of payment is not very widespread in France, unlike the Anglo-Saxon countries, but it has advantages.
We will limit ourselves in this study to detail the calculation of the payday loan insurance on the capital outstanding.
Group contracts rarely use this technique because declining premiums force them to resort to a smoothing of premiums in order to keep a monthly payment with constant insurance.
Individual pricing combines several variables that favorably affect the calculation of the premium or on the contrary disadvantage the borrower: age, socio-professional category, health status but also some lifestyle habits such as smoking or playing sports. risks. It also depends on the amount chosen by the borrower.
Impact of the nature of the payday loan
- For a non-deferred amortizing loan , the premium is calculated on the outstanding capital due at annual maturity.
- For loans with a total grace period (both capital and interest deferred), the contribution is based on the KRD plus interest carried forward.
- The peculiarity of credits in fine is that the basis of calculation remains the same until the end since the capital is never amortized.
- Finally, this type of contract rarely applies to leasing . If you are in this case, know that the premium will be calculated on the total amount of rents HT plus the residual value of the property.
Annual calculation of the premium
The insurance premium is calculated on an annual basis. It therefore takes into account only once a year the monthly amortization of the loan. The insurer then rates the contract by applying the insurance rate on the average KRD for the next twelve months, the premium being always paid in advance.
Early repayment of the loan
This method of calculation favors the borrower who reimburses in advance compared to borrower borrowed capital.
This benefit is not definitive because most insurers recalculate the contribution base by deducting the portion repaid of the borrowed capital.
- Characteristics of the borrower : 35-year-old non-smoker with no aggravated health risk and no professional activity considered dangerous.
- Loan characteristics : Depreciable type amount of € 150,000 over 25 years at a fixed rate of 3.70%
- Guarantees Death and total and irreversible loss of autonomy, partial disability and temporary incapacity for work with a 90-day period.
- Insurance rate on borrowed capital : 0.33%.
Result based on payday loan
The payday loan is calculated very easily by applying the insurance rate directly to the amount of the loan. From then on it is enough to divide by twelve the result to find the amount of the monthly premium. In our example, the borrower will, therefore, pay € 41.25 per month, for a total insurance cost of € 12,375.