Quarterly premium payments increase the annual cost of insurance because:

Quarterly premium payments increase the annual cost of insurance because:

A)insurer risk exposure is greater

B)interest to the insurer is increased while administrative costs are decreased

C)interest to insurer is decreased while administrative costs are increased

D)mortality costs are greater

Ans. C)interest to insurer is decreased while administrative costs are increased

Rather than paying a premium every quarter, this will be without an initial interest payment which increases the cost and minimum payment of the insurance. With premium payments being received later in a policy year when they are not paid annually but rather on a quarterly basis, the insurer does not receive the complete premium amount early in the policy year. namely the insurance company has the funds for less time which means they profit much less out of the aggregate premiums as interest. However, this may result in higher administrative costs for the insurer since it will have to process and handle the multiple premium payments spread over many months of the year compared to the single periodic premium payment. Insures reduce the interest income and own administration expenses having whole yearly cost fee for schedule suitability.