III, Licentiate Exam|IC 02, Practice of Life Insurance|One Liners|Chapter 2

III, Licentiate Exam|IC 02, Practice of Life Insurance|One Liners|Chapter 2

The practice of Life Insurance (IC – 02) is a paper in III Licentiate Examination for Life Insurance. The practice of Life Insurance (IC 02) is a mandatory paper and it comprises of 20 marks. This is the most important paper in III Licentiate Examination, and most people prefer this paper.
This paper comprises of 100 Multiple Choice Questions. Aspirants need to score 60% in this paper to qualify for Licentiate.

We are providing Chapter 2  – Premium And Bonuses one-liners of this paper practice of Life Insurance (IC – 02) which will be very important from exam point of view. This one-liners is very easy to understand.

♦Chapter 2 – Premium  And  Bonuses

  1. Income earned is more than required amount to meet expenses and liabilities and the income is called Earned profit.
  2. Main source of income of Insurance Company is Premium.
  3. Premium = claim expenses + administration expenses + infra cost
  4. Higher the age, higher the premium.
  5. Mortality table also known as Life Table or Actuarial Table.
  6. Actuaries are trained professionals who deal with the financial aspect of risk to life.
  7. Actuaries:
  • Help in construction of premium
  • Evaluate solvency of insurance company
  • Ensure compliance with law
  1. Income compared with expected liabilities or expenses of the company. This is done to evaluate the overall solvency of the business.
  2. If present life funds is more,  the Insurer is SOLVENT. The excess in Life Fund called SURPLUS also called Valuation Surplus or Actuarial Surplus.
  3. If the Fund is less the Insurer is not Solvent and the difference is called
  4. Types of premium
  • Risk  Premium  –  Calculated  on  the  basis  of  Probability  that  a  person likely to die before next Birthday.
  • Net Premium or Pure Premium – Taking into account interest likely to be earned.
  • Gross premium
  1. Investment Earnings:
  • The premium received by the Insurance Company from PH is invested in funds and securities.
  • If  interest  from  such  earning  are  expected  to  be  HIGH,  the  premium can be reduced.
  1. Level Premium: Premium spreads as risk premium towards whole time period of the poicy called Level Premium.
  2. Whole time period of the policy called PPP – Premium Paying Period.
  3. Office premium (Tabular Premium) ;
  • Expenses  loaded  by  Insurance  company  called  Office  premium  after loading Net  premium  or  PP,  the  level  premium  figure  arrived  called  Office premium.
  • The premium figures printed in promotional literature and brochures are Office  premium.
  • Also called tabular premium
  1. In Long term policy
  • “D” risk is more
  • Premium is less in Long term policy.
  • Total premium also higher than Short term policy.
  1. Administration Expenses:
  • Includes administration and investment, management and infrastructural expenses.
  1. Contigency Expenses:
  • For unexpected contigency that results in sudden increase in misc. Rates.
  • Premium  Loading –  Administration  Expenses,  Contigency  Expenses  and Bonus.
  1. Bonus for with profit policies. For Bonus Policy holders to pay some additional premium.
  2. Probability that a  person  would  die  in  next  5  years  would  be  low  as compared to the probability that a person would die in next 20 years.
  3. Insurers prefer only ANNUAL MODE of premium as compared with other mode of premium.
  • Risk  of  default  in  payment  of  pemium  under  monthly  mode  is  HIGH.
  1. Premium calculation based on
  • Age of the person to be Insured.
  • Medical condition
  • Sum Assured
  • Type of Plan
  • Mortality Table
  • The Interest Amount
  1. Bonus: Distribution of valuation  of  Surplus  to  Policy  Holders
  2. Types of Bonus:
  • Single Reversionary Bonus – on Bonus SI
  • Compound Reversionary Bonus – Vested Bonus on Last year.
  • Terminal – One time Bonus
  • Added to policy at time of Maturity
  • An incentive to Policy Holders
  1. Bonus – At the time of Maturity only
  • Not in paid up policies
  • Once declared cannot be withdrawn
  1. Interim Bonus –  is  payable  to  Policy  holders  who  become  claimants between 2 valuation dates.
  2. LIFE FUND : Premium and income earned from investments by Insurance companies are maintained in a Fund called Life Fund.

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