· Level premiums are payable throughout life or ceasing only at maturity or at attainment of specified age. Therefore, following the extensive use of mortality table; an actuarial computed table showing the distribution of human ages and expected death rates, and calculated rate applicable for specified ages for purposes of life assurance), the life assurance contracts have their annual premium determined and fixed from the outset and remains constant throughout the term of the contract.
This is to say that life assurance premiums are based on level premium basis. In another expression, the premium charged a policyholder remains the same amount at every renewal, irrespective of the changed circumstances of the life assured throughout the term of the contract.
The implications are that premiums in the
early years of the life assurance will be higher than the premiums in the early
years of the life assurance will be higher than the mathematically calculable
cost of the risk run. The later years premiums are less than the cost of the
risk run, and hence in the early years a RESERVE will accumulate on such
policies. The reserves grow to become surrender value should the policyholder
decides to discontinue the policy in future prior to maturity date.
Life insurance premium may be paid yearly
or at slightly increase cost, half-yearly or quarterly. If premiums are to be
paid monthly the policyholder is required to pay in by Debit Note or Banker’s
order.
·
Participation in profits: Whole Life Assurance
and Endowment Assurances can be issued with or without participation in profits.
The premiums payable for with profits participation are usually higher than for
similar without-profits participation. Policies issued with-profits
participations entitle the policyholders to share in the profits of the
insurers’ life assurance fund. The profits are usually distributed periodically
as bonus on simple or compound basis to the sums assured and payable along with
the sums assured whenever they are to be paid.
Where a policy does not attract bonus, the policy is said to
be issued without profit participation.
· Bonus: Policy issued with-profits participation attracts bonus. The bonus represents the surplus of assets over potential liabilities of the life assurance fund as calculated by an actuary periodically, say every three years or every other year.
The bonuses declared
are usually allocated to the sum assured and payable in the form of
reversionary bonus in other words, the bonus is payable only when the
policyholder becomes entitled to claim the ultimate proceeds of the policy.
Thus, the amount payable under with-profit policy increases each time a bonus is
added or declared.
·
Surrender Value: If a policyholder decides to
discontinue the servicing of his life assurance the amount which he may be
entitled to is called the Surrender Value of the policy. For a policy to
qualify for surrender value, at least two full years’ premiums must have been
paid by the policyholder. The amount or cash to be refunded will depend on many
factors including the amount of surrender value will be mush lesser than the
premiums paid, and bonuses earned.
·
Paid up value: A paid-up policy is a policy free
of all future premiums, thus, if a policy has acquired surrender value, it may
as an alternative to surrender be converted to a paid-up policy for a reduced
sum assured called paid up value. This new sum assured depends on the premiums
paid up to date and other deductions of indebtedness required. With this new
status, no further premium shall be payable, but the policyholder keeps the
policy until the end of the contract when the paid-up value becomes payable.
·
Policy Loan: Life assurance companies do grant
loans on security of the life assurance policies up to ninety percent of the
surrender values on the request of the policyholders. The loans are granted
after due considerations at current rate of interest chargeable by the
insurers. The loans and the interest are required to be paid during the
currency of the policy; otherwise, they stand as charge against any claim.
Again, any interests unpaid are usually capitalized to attract further
interests.
·
Income Tax Relief: Under the existing tax
regulations in Nigeria, a deduction of the premium each year from the taxable
income of life assurance policyholders is generally allowed by the Federal
Inland revenue Service subject to certain limits as may be determined by the
tax authorities.
· Assignment: Life assurance policies may be assigned. A life assurance policy is assigned when the policyholder instructs the insurer to transfer the financial benefits under his policy to another named person or body.
This is done by communicating to the insurer through a
written notice which is accepted by the insurer on payment of an assignment fee.
When the insurer eventually makes payment to the assigned person, he will
require the person receiving the money to sign a form discharging the insurer
from any further liability.
The forms of insurance policies that can be contracted in
modern insurance business cannot be exhausted, new forms of insurance policies
may be introduced into the insurance market as the needs arise. The next
chapter is devoted to discussing the legal principle of modern insurance
contracts.