PREMIUMS CON’T
o NET AND GROSS PREMIUMS
o LEVEL PREMIUM RESERVES
o INSURANCE AGE
• SETTLEMENT OPTIONS
o LUMP SUM SETTLEMENT
o PROCEEDS AND INTEREST
o FIXED YEAR INSTALLMENT
o LIFE INCOME



Net and Gross Premiums
The company begins by calculating the net premium for a particular candidate based
on the factors mentioned above. Once this has been determined,
operating/administrative costs are loaded onto the net premium to arrive at the gross
premium.
Level Premium Reserves
To counter the problem of increasing premiums as the age of the insured increases,
the concept of level premiums was introduced. Under this philosophy, premiums
remain stagnant over the life of the insurance instead of stepping up as the insurance
period progresses. This amount is higher than the yearly renewable term premium in
the early years of the policy but lower than this amount in the later years.
Insurance Age
• One of the most important determinants of the premium charged is the insured’s
age (remember that this is because of the mortality factor). However, the
insurance age of the insured may or may not be the same as the insured’s
chronological age.
• Companies use two methods to determine the insured’s age:
1. In the first method, the insured’s age will be the chronological age at the
insured’s closest birthday. If the insured’s last birthday was more than six
months ago, the Insured’s age will be the chronological age plus 1.
2. In the second method, the age of the insured is the same as his/her
chronological age on the last birthday, regardless of the number of months
that have elapsed since.
Settlement Options
This refers to the payment of benefits after the death of the insured. The various
alternatives available are discussed below:
Lump Sum Settlement
This is when the beneficiary receives the policy proceeds in a single payment
following the death of the insured.
Proceeds and Interest
It is agreed that at the minimum interest rate stated in the policy, the insurance
company will hold the policy proceeds and make interest payments to the
beneficiary. The beneficiary retains the right to withdraw the proceeds of the
policy either in whole or part, at any time.
Fixed Years Installment
The beneficiary receives payments in equal monthly installments, and has the
option to choose the number of years for which he/she will receive payments.
The value of these payments is determined by the policy proceeds, the number
of years the beneficiary chooses to receive payments and the interest rate.
Under this option, the beneficiary has the option to withdraw proceeds at any
time.
Life Income
Payments are received for the life of the beneficiary; the value of these
payments depends on the policy proceeds, beneficiary’s age at the time of
commencement of payments, beneficiary’s sex, and the specified time for
which payments are required. Should the beneficiary die before the lapse of
the specified time, the payments are made to a named successor.