- 1 Distribution of life insurance profits and benefits
- 2 1. Favorable mortality
- 3 2. Higher interest rates
- 4 3. Savings from management costs
- 5 4. Confiscation and surrender
- 6 5. Profit sharing
- 7 6. Disability premium
- 8 Banas distribution
- 9 1. Simple system of distribution of future bonuses
- 10 2. Compounding system for distribution of future bonuses
- 11 3. Cash banas system
- 12 4. Premium Laughter Benas
- 13 5. Possible or future desirable banas
- 14 6. Tontaine Banas system
- 15 7. Batakat bonus
- 16 8, Contribution bonus system
- 17 9, Promised bonus
- 18 10, Interim bonus
- 19 11. Banas arrangement for purchase of refined parts
Distribution of life insurance profits and benefits
Distribution of Life Insurance Profits and Benefits – Life insurance is a technical business based on the premium system. According to the premium system, the premium is collected from the insured at the same rate till the full term of the policy. In the initial years, the premium paid is higher than the sum insured (i.e., the paid claim + management cost + profit) and this extra portion is then transferred to the Life Fund. If the sum insured is higher than the premium collected in the following years, the deficit is offset by the life fund.
In life insurance, if the income exceeds the cost of any year, it cannot be considered as profit. This is because when the insurance company does not accept the new insurance policy, when the expenditure is more than the income, then this extra portion (i.e. the accumulated funds) is gradually depleted. Life funds are accumulated and inflated every year as insurance companies are always issuing new insurance policies. According to the Insurance Act, every life insurance company has to settle its assets and liabilities at least once every three years and the method of clearing is called liability assessment. This liability is determined on the basis of future liability or past experience. This is discussed in detail in the seventh chapter. The main purpose of determining liability is to check the financial condition of the life insurance company i.e. to judge its assets, liabilities and profit margins.
If the value of the premium paid in the future is higher than the present value of the future claim with the help of determining the liability, then that means more part will mean the main liability of the company. The funds or reserves accumulated for the financial well-being of the company should be at least equal to this principal liability. If this reserve or fund is more than the principal liability, then that excess will mean a surplus and if it is less than the principal liability, it will mean a deficit. Thus, the difference between the current value available in the future and the current value of the premium paid from the cost of management is the surplus or profit of the insurance company. E.g.,
The present value of the future + the total cost of management = a, and the present value of the premium paid in the future is b, then a-b = surplus; And b-a = deficit. Some money is kept separately from this matte surplus as a measure of incidental costs and incremental losses. This is done to compensate for future epidemics or catastrophic damage or in the event of a large-scale unexpected future.
The matte surplus is usually divided into three parts, viz .; (1) For special purposes such as, general ancillary or investment reduction fund, (2) separate fund for profit distribution and (3) non-dedicated fund formation. Combining the first and third parts gives the original surplus and the second part is called the divisible surplus or profit. Therefore, if the amount of life insurance fund is more than the amount of future liability of the life insurance company, that is the surplus. Other than that
All that remains, except for the amount of the system, is profit. So if there is no surplus, there can be no profit.
Life insurance companies calculate premium rates based on past mortality experience, expected future interest rates, expected costs of running the office, and required profits. That is, if the mortality experience is favorable, if the actual profit earned is higher than before and if the cost of management is saved, then it will increase the profit. Apart from that, some profit can be earned from forfeiture and surrender of insurance policy. Thus the following factors are considered as a source of surplus or profit of a life insurance company.
Source of surplus or profit
1. Favorable mortality
Life insurance companies usually collect premiums from the insured based on an estimated annual mortality of the insured life based on the mortality register. But in practice, the insured is said to be selected by medical examination and the mortality rate is much lower than the estimated rate due to the day-to-day expansion of medicine and education. Therefore, the lower the number of deaths, the lower the claim for death. Thus the premium charged on a higher mortality rate than the actual mortality rate is collected from the policyholders every year.
It will continue to be accumulated in the form of reserves. On the one hand, higher premiums will be collected as the life span of human beings naturally increases, on the other hand, dividends can be earned by investing this reserve for a long time. Therefore, from this favorable mortality rate, the amount of surplus increases as it is possible to get premium and long-term investment.
2. Higher interest rates
The life insurance company calculates the premium at an estimated rate of interest earned by investing the accumulated premium. But in reality, the interest earned by the company by investing the reserved funds is much higher than the previous estimated rate. This higher interest rate increases the company’s surplus.
3. Savings from management costs
Life insurance companies hold a fixed cost for annual management. As the business grows, so does its management. Apart from that, the company always tries to keep the amount of expenditure below the specified limit. Because, the cost is more than the prescribed amount, it is dangerous for the business. As a result of these efforts, it was noticed at the end of the year that the actual cost was less than the target set in the management sector. The money that is left over in this case also inflates the profit margin of the life insurance company.
4. Confiscation and surrender
It is often seen that in the early years of insurance, the policyholder gets forfeited as he is unable to pay the insurance premium financially. The premium paid on the forfeited insurance policy then becomes the income of the company. In many cases, if the insured is unable to pay the future premium after paying the insurance premium for two or three years or wants to withdraw the insurance contract, the insurance company deducts the surrender value of the insurance to him if he claims. This is worth the surrender
Usually only 40 to 30 percent of the premium paid; Therefore, the remaining premium remains for the cost and profit of the insurance company. But at present it is not possible for the generous centenary of insurance policy to earn income from the same subject as before.
5. Profit sharing
The premium rate of insurance policy with dividend is higher than that of non-dividend insurance policy. The additional premium that is collected from the insured, including dividends, for the right to participate in the company’s profits is called profit sharing. The company can also increase the surplus by investing this extra premium collected. However, the policyholders with dividends not only get back this extra premium in the form of a bonus, but also a portion of the surplus generated from the above sources. On the other hand, the policyholders also get a share of the surplus generated from various sources of the policyholders without dividends, as the aforesaid persons do not have the right to receive it.
6. Disability premium
The risk of permanent disability is taken up before a certain age in the insurance policy. And accordingly remission of premium after disability of the insured. The value of a disability claim is always higher than the estimated amount at the time the premium is charged. The premium rate is a bit higher for additional benefits in this type of insurance. However, this extra premium collected is a source of surplus for the insurance company.
Apart from the above mentioned potential sources of surplus, there is an opportunity for the life insurance company to increase the value of the bond and also the income from this business. However, the first three issues mentioned can be said to be a major source of surplus for the life insurance company.
The surplus that remains after the life insurance business liability has been determined by the insurance expert or actuary, is distributed in three ways, namely:
Distribution of dividends among shareholders. The portion of Ajit’s dividend that the insurance company distributes to the insured is called Banas. In America this banas is called dividend. According to the law of this country, 90 per cent of the distributable surplus has to be paid on the profitable life insurance policy. The following is a brief description of some of the most common bonuses distribution methods
1. Simple system of distribution of future bonuses
According to this arrangement, the surplus is distributed in proportion to the sum insured on all the profitable life insurance policies. The benefits of this method are exclusive to the future and it is payable with the sum insured of the original insurance. Usually these bonuses are not paid in cash. However, this type of futures can be converted into cash by investing relatively little money in any company. This method is very popular with the general life insurer as the distribution system is relatively simple. Life insurance companies in this country use this method Benas distributes.
2. Compounding system for distribution of future bonuses
This method is very popular as a simple system of distribution of bonuses and the mentioned future proprietary bonuses. According to this scheme, the distributable surplus is not only distributed in proportion to the sum insured, but also the dividend is distributed in proportion to the matt axis by adding the previously paid bonus to the sum insured. As a result, the long-term insurance policy becomes a partner of Benas at a higher rate than the new policy.
3. Cash banas system
In many cases, the life insurance companies in different parts of the country do not deposit the declared bonuses with the insured real money and distribute the bonuses to the insured in cash. As a result, he has a regular income from Banas. However, the policyholder may, if he so desires, convert the bonus into a future-owned bonus at a higher rate without charging cash or use it to reduce future premiums.
4. Premium Laughter Benas
The declared bonuses of this method are excluded from the premium. In many cases, the insurance company deducts from the premium received from the insured by adding it to the actual amount of the declared Banas insurance, resulting in the amount of the premium paid later being much less than the actual amount. The full premium is collected with the help of declared Banas. Again, if the declared bonus is more than the premium, the premium is deducted from the bonus and the surplus is credited with the sum insured.
5. Possible or future desirable banas
According to this plan, the Banas Corner declared from time to time is not attached to the policy unless special conditions are met. These are usually suspended for the future subject to compliance with the national ban. In all these conditions such as surviving till the specified time or age of the insured or the amount of premium paid is equal to the sum insured etc. This banas is kept till the condition is fulfilled and it is paid after the condition is fulfilled. If the insured dies before fulfilling the conditions, the insured does not get the declared benefit. The premium rate of this type of insurance is relatively low.
6. Tontaine Banas system
This type of bailout system is common in the United States. Under this type of bonuses, the distribution of bonuses is suspended for a few years after the introduction of the policy. The policyholder is entitled to this type of bonus if he pays regular premium during the minimum period remaining. According to this arrangement, higher interest rate is paid on the insurance policy issued for more days. However, if you do not survive for a certain period of time or do not pay regular premiums till that time, both the sum insured and the declared bonus are forfeited. This ban has been revoked in many US states because of this huge inconvenience.
7. Batakat bonus
In many cases, the insurance company reduces the premium rate from the limiters in the initial stage in the hope of making more profit in the future. This reduced portion of the premium is called the discounted bonus. According to this method, the amount of possible bonus is estimated and the remaining premium is deducted from the premium. If the declared bonus is less than the deductible bonus, the insured can deduct the rest of the cash or reduce the sum insured in that proportion. If the declared bonus is more than the deducted bonus, the surplus is paid as cash or heavy property bonus.
8, Contribution bonus system
Introduced for the purpose of equitable distribution of distributable surpluses, this method is extremely complex and difficult for anyone other than an expert to understand. According to this situation, the insurance plan, the age of the insured, the duration of the insurance, etc. are analyzed and divided into different categories and the distribution of bonuses is arranged by analyzing the mortality rate, profit making and operating expenses in each category. As a result, Benas’s hair is not equal. This method is too complex to be tested in the UK
After inspection, it has been abandoned. But in Canada and the United States this system is very common.
9, Promised bonus
This type of insurance policy pays a fixed amount of interest every year. The profit margins of the company’s general business do not differ from those of Benass. This type of promised bonus is usually arranged by adding the surplus premium to the rate of non-profit life insurance premium. If the insured survives at the end of the term, he is sure to get a certain amount of bonus so that he can know the exact amount at the beginning of the insurance.
10, Interim bonus
Before determining the liability of the life insurance business, it is necessary to pay the insurance liability in those cases on which an interim bonus can be paid. After determining the liability of this type of life insurance business, it is declared based on the estimated basis of future surplus. After deducting the next liability, if the surplus is declared, the remaining amount of this surplus is deducted and the remainder of the surplus is distributed as profit in the profitable life insurance policy as per the Vomiting Act.
Therefore, the past experience of the life insurance business should be taken into consideration while declaring the interim bank. If the estimated base of future surplus is much higher than the result of the previous liability assignment or the amount declared, the bulk of the surplus expressed in the next liability assignment is spent as this class of bonuses, reducing the amount of future bonuses proportionately.
11. Banas arrangement for purchase of refined parts
According to this method, the declared balance is used to purchase the modified part of the original policy. According to this method, if the declared balance is used to cover the policy, then the insured is relieved of the liability to pay future premiums.