It is a premium fixed such that it does not increase with age but remains constant throughout the contract period.
It has 2 components :
- Term or Protection Component
It consists of that portion of premium actually needed to pay the cost of the risk.
- Cash value Element
It is made up of accumulated excess payments of the policy holder. It constitutes the saving component.
Premiums collected in early years of the contract are held in trust by the insurance company for the benefit of its policy holders. The amount so collected is called a "reserve". An insurance company keeps this reserve to meet the future obligations of the insurer. The excess amount also creates a fund known as the "Life Fund". Life Insurers invest this fund and earn an interest.
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