Page 177 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Accounting for Companies – II

notes 8.5 keywords

Annuity: An annuity policy provides for payments to be made at regular intervals, starting at a
specified date, and usually continuing until the death of the policyholder.
Bulk reserve: This reserve represents the estimated deficiency in the aggregate of case reserves
for known claims.
Commission: Commissions are paid to brokers or agents (‘intermediaries’) as an incentive to sell
policies and maintain and expand the life company’s business.
Endowment Assurance Policy: An endowment assurance policy will pay the policyholder a sum
after a fixed period or on death before the period is completed.
Premium: A premium is a sum paid to the life office to assure the benefit specified by the policy.
Prospective Approach: Under this approach, the deposit value will change with the amortisation
of interest, and with a change in projected future losses (and with a change in the discount rate,
if the rate is not locked-in by the accounting paradigm).
Reinsurance: The practice of insurers transferring portions of risk portfolios to other parties by
some form of agreement in order to reduce the likelihood of having to pay a large obligation
resulting from an insurance claim.

Whole life policy: A whole life policy has no fixed term and there will always be a benefit
(contractual amount, adjusted for items such as policy loans and dividends, if any) at the death
of the insured.

Without-profit Policies: The only benefit derived by the policyholder (or his/her estate) is
payment of the sum assured. This amount is determined by the original terms of the policy.
With-profit Policies: This term is used to describe policies where the policyholders are eligible to
participate in the surpluses established.

8.6 review Questions

1. There are two general approaches to ceded reinsurance accounting currently in existence.
What are they?
2. Define the following terms:
(a) Term insurance
(b) Endowment assurance
3. Discuss the accounting treatment for initial commission.

4. Explain the following concepts:
(a) Prospective Approach
(b) Pension plan
5. Discuss the types of life insurance products.

6. Define the term premium. What are the types of premium?
7. Describe the concept of reinsurance.
8. What are the basic concepts of Insurance accounting?
9. What do you mean by bulk and additional case reserve?
10. What are the rules and forms of deposit accounting?

172 lovely professional university