Bonus

Bonus is paid as an addition to the basic benefit payable under a contract

Types of reversionary bonus

Simple Reversionary Bonus
Insurer declares bonus on the sum assured

Compound Bonus
Compute the annual bonus on a compound interest

Terminal  Bonus
As incentives to the insured to continue with the company for long term. It increases as the duration increases.

Guiding Principles of Determining amount of loading

Adequacy
The total loading from all policies must be sufficient to cover the company's total operating expenses. It should also provide a margin of safety and finally it should contribute to the profits or surplus of the company.

Equity
Expenses and safety margins etc   should be equitably apportioned among various kinds of policies, depending on type of plan, age and  term etc

Competitiveness 
The resulting gross premiums should enable the company to improve its competitive position

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