Premium

The price charged by a insurance

company for an insurance is called
premium.
It is the monetary consideration paid
by the insured to the insurer for the
insurance guarantee granted by the
policy.

Characteristic of the
Premium
It is Monetary Consideration for the insurer
for a promise to compensate loss.
It can be remitted by the assured personally
or through institution.
Payment of first insurance is the acceptance
of the contract.
Non payment of the premium may cause the
lapse of the policy.
The rate of the premium is determined by
the class of risk involved.

Factor affecting the Premium Rate

Mortality Rate
Interest Rate
The rate of expenses
Reserve fund
Bonus or guaranteed additions
Age and health conditions
Types of policies
Competitors Rate

Classification of premium
Net Premium: It is a part of the
premium which is essential for
discharging the death or maturity. It
is classified as
Net Single Premium
Net installment premium
Gross Premium:

Calculation of Premium
Net Premium = Mortality Rate + Rate of
Interest
No. of
assured
Assumptions
Premium is collected in the beginning of
the contract
In

Meaning of Premium
Premium is the consideration money that a
policyholder has to pay in lieu of the benefit that
the insurer promises to confer on the happening of
the scheduled eventuality
Types Of Premium:
1. Net Premium: Net Premium is a part of total premium,

which is essential for discharging the death of

maturity claims. It is calculated by multiplying the
mortality rate by total sum insured. Net premium
is further classified in two categories i.e. Net
Single premium and net installment premium
2. Gross Premium: Net Premium +Insurance expenses
incurred by insurer

Factors affecting Premium Rate

Mortality rate
Interest Rate: The money so collected by the LIC
towards premium can be invested in some
profitable schemes and earn profit by way of
interest. The rate of premium is reduced
accordingly on the basis of income earned by
the way of interest
The amount of expenses incurred by insurer
Reserve Fund: Insurance companies require huge
amount of funds to compensate unexpected
events . Therefore all the insurer add little
amount to the premium for this requirement

Factors affecting Premium Rate

Provisions for the payment of bonus to the
insured after a definite interval of time
Age and health conditions of insured
Type of policies
Rate of tax rebate: usually income tax
rebate is allowed on premiums paid. In
those policies where the tax rebate is
higher, the premium rate is kept higher.
Competitors rates charged

Plans or methods for computation of

premiums
1. Assessment Plan:

Under this plan, premium is

determined at the time of payment of claims, not at the
time acceptance of insurance proposal. This method is not
followed at the present time.

2. Natural Premium Plan:

Under this method,

Premium is determined on the basis of mortality table used
by different insurers

3. Level Premium Plan:

In this plan uniform

premium rate is paid throughout the insurance period

Calculation of Insurance Premium

Calculation of net premium: Net premium refers
to the premium which is sufficient to
discharge the payment of insurance claim,
but no provision of other expenses are
included in it.
Net premium = Mortality rate +Rate of
Interest
No. of Assureds

Calculation of Insurance Premium

Calculation of gross Premium:

Gross premium is
calculated by considering mortality rate, interest rate as well
as administrative and other expenses
Gross Premium = Net premium + Loading

Loading: loading refers to the process of including the expenses

of operative cost and other kind of expenses to net premium.
These expenses include expenses incurred for getting new
business, collection of premiums, service charges and other
office expenses

Distribution Channel
A multi-channel strategy is better suited for
the Indian market. Indian insurance market is
a combination of multiple markets. Each of
the markets requires a different approach.
Apart from geographical spread the sociocultural and economic segmentation of the
market is very wide, exhibiting different
traits and needs.

Various Distribution Channel

Agents
Banks
Brokers
Internet
Corporate Agents

Various Distribution Channel

Agents: Agents are the primary channel for distribution of insurance. The
public and private sector insurance companies have their branches in almost
all parts of the country and have attracted local people to become their
agents.
Today's insurance agent has to know which product will appeal to the
customer, and also know his competitor's products to be an effective salesman
who can sell his company, the product, and himself to the customer.
To the average customer, every new company is the same. Perceptions about
the public sector companies are also cemented in his mind. So an insurance
agent can play an important role to create a good image of company.

Banks: Banks in India are all pervasive, especially the public sector banks.
Many insurance companies are selling their products through banks.
Companies which are bank owned, they are selling their products through their
parent bank.
The public sector banks, with their vast branch networks, are helpful to
insurance companies. This channel of selling insurance is known as Bank
assurance.

 Brokers: Now a days different financial institution are

selling insurance. These financial institutions are known as
brokers.
They are taking some underwriting charges from the
insurance companies to sell their insurance products.
Internet: In this technological world internet is also a
channel of selling insurance. This can be as direct marketing.
Corporate agents: Corporate agency is a cross selling type
of channel. Insurance companies tie-up with business
houses in other industries to sell insurance either to their
employees or their customers. Insurance industry, during the
past 2 years has witnessed a number of such strategic tieups and alliances. Corporate