Components of premium

Rebates

Life insurance companies may offer certain types of rebates on the premium that is payable. Teo such rebates are

• For sum assured
• For mode of premium

Extra charges(Loadings)

Addition to net premium

Example : Administration charges, medical expenses, processing fees, profit margin bonus etc.

Types of Premiums

Arriving at the rate is performed by an Actuary

Office Premium

This rate printed in the tables of insurance companies. These are typically level premiums which need to be paid every year.

Risk Premium

Premium is charged to meet the claim for the yar.

          Risk Premium = Mortality Rate x Sum Assured

Level Premium

Equal premium charge for entire term of the policy

Net Premium

The interest earned is also considered for the premium calculation.

          Net premium = Premium-Interest Earnings.

Gross Premium

          NET PREMIUM+LOADING FOR EXPENSES+LOADING FOR  CONTINGENCIES + BONUS LOADING

Higher for mortality rate, higher the premiums would be.

Higher the interest rate assumed, lower the premium.

Premium

• Pricing refers to the process of calculating the rate of the premium that will be charged on insurance policy.
• It is normally expressed as a rate of premium per thousand of Sum Assured

The  policyholder can pay the premium in a number of ways:

• Single Premium Plan
• Level  Premium Plan 
• Flexible Premium Plan

Keyman Insurance

It can be described as an insurance policy taken out by a business to compensate at for financial losses that would arise from the death or extended capacity of an important member of the business.

The SA under keyman insurance policy is generally linked to business profitability. The Death Benefit in the key man insurance is taxed as income.

Mortgage Redemption Insurance(MRI)

It is an insurance policy that provides financial protection for home loan borrowers. It is basically a decreasing term life insurance policy taken by a mortgagor to repay the balance on a mortgage loan if he /she dies before its full repayment. It can be called loan protector policy.