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The amount of money that the customer pays to purchase an Insurance Policy is called the Premium. The actual calculation is a complex technical process, involving actuarial and statistical principles. Only trained professionals called Actuaries do it.
The premium paid by the customer for a life insurance policy has various components. Let us first understand the various components of Premium. Diagrammatically, the components on premium are given below:
The premium that is paid has 3 distinct components in any life insurance product. It is commonly called EMI, i.e. Expenses, Mortality, and Investment.
All life insurance products may or may not have the 3 components. It is the combination of 2 or 3 components that make each product unique. In any Life insurance Product, first, the expenses are deducted, then mortality charges, and finally the remaining amount is Invested. If the investment is done according to the customer’s choice, i.e. the risk of investment is borne by the customer, then it is ULIP and if the risk of investment is borne by the company, then it is Traditional Policy.
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