1% Premium Levy - How is it calculated?

[micar]

Hi

I am looking at the levy that was introduced a few years ago.

There are two life companies who are calculating it differently.

If I take €90k investment into a life investment bond. The premium levy is met by unit cancellation once the units are bought.

company 1)
The levy is calculated as being 1% of 99% of the premium investment i.e. 99% of €90k is €89,100.00 and 1% of €89,100.00 is €891.00.

Company 2)

The levy calculated as being premium paid/1.01 and then divided by 100.
€90,000/1.01= €89108.91
€89108.91/100= €891.09

Which one is correct?

I know the difference is only €0.09 euro.

Thanks

 

[orka]

Company 2 is correct.

The levy is 1% of the premium going to the life company. So if the life company is getting 200, the levy is 2 so the customer pays a total of 202. If you know the total that the customer pays, to reverse the calculation, you divide by 1.01 to get the amount going to the life company (202 / 1.01 = 200) and then multiply the answer by .01 to calculate the amount of the levy.

So, as in your calculation 2 above:

Total from customer = 90,000
Amount to life co = 90,000 / 1.01 = 89,108.91
Levy amount = 89,108.91 * .01 = 891.09

 

[micar]

Thanks for your reply. That's what I was expecting.

I work for a company that is applying example 1. Ooops!! I know it's small amounts but it's still wrong. For unit linked life investments, the levy is taken into consideration for the calculation of exit tax.

I suppose the company may take the view that we are under charging and not over charging so they may elect not to do anything.

Any non unit linked policies set up prior to the implementation of the levy is calculated correctly.

So, then all unit linked contacts are wrong and possible non unit linked contacts depending in how the premiums for new business quotes are being determined.