Expense Loading

What Does Expense Loading Mean?

Expense loading is the portion of an insurance premium allocated to cover the insurance company’s operating expenses, such as taxes and underwriting costs. Along with the probability of claims and profit loading, expense loading is factored in when calculating premium rates.

Insuranceopedia Explains Expense Loading

The cost of an insurance premium is composed of potential claims, profit loading, and operational expenses. Operational expenses include the salaries and wages of insurance company employees, utility costs, and other overheads. How much these expenses contribute to the final premium varies by insurance line, which is why the factors that affect a life insurance premium aren’t identical to those used for property or business policies.

Since many companies offer similar insurance products, there is often competition to reduce expense loading, allowing them to offer lower premiums to attract clients. The breakdown of how business insurance premiums are calculated shows where expense loading sits relative to claims and profit loading.