A Guide To Life Insurance - Premium Rates ....

 

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As much of the business taken on by companies was very long-term, they did not need to keep all the reserves in the bank. Investments in Government securities, property and shares were made, and these helped to increase the surplus achieved.

As the presence and predictability of the surplus was recognised, companies split their policies into two classes, those participating and those not participating in profits, with different rates of premium.

What the companies were saying, in effect, was that according to the necessarily conservative assumptions of the actuary, such and-such a rate of premium was necessary at such-and-such an age.

This would be the non participating rate. Those prepared to pay a higher rate of premium for the same sum assured would, however, be allowed to share in the surplus achieved.

This surplus would arise first from the investment of the extra premium paid by the participating policyholders, and from any surplus arising on non-participating business as a result of the conservatism of the assumptions made by the actuary in setting premium rates; secondly from any reduction in mortality rates over the period; and thirdly from any reduction in operating expenses below those anticipated.


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From this it might seem that non-participating (or non-profit) policyholders were getting a raw deal, but this is not the case.
The actuary's assumptions proved conservative on two accounts.
First, mortality declined.
It has done so fairly steadily for over a century, and, though we now know this has happened, actuaries cannot simply extrapolate and assume the trend will continue, since to do so would lead, among other things, to the conclusion that humans would all become close........ see: click here for Premium Rates More


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