International Styles

The Gross Premium - Loading

In The Net Level Premium premiums were classified in one case as net or gross. The net premium, or that portion which cares for policy claims was analyzed at length. The gross, or office, premium includes the above plus an amount called loading, the purpose of which is to pay for expenses incurred in writing and caring for insurance policies and to provide a margin for possible contingencies. Chief among the latter are errors in the net premium, due to failure to realize expected mortality or interest, losses arising from forfeitures, and the creation of a fund from which dividends may be paid. The practice of paying dividends has become so firmly established that the loadings on participating policies are almost invariably made with the further idea of creating a surplus for future dividends.

The subject of loading shares with that of distribution of surplus the distinction of furnishing insurance actuaries some of the most difficult problems with which they must contend. This is due to the complexity of the expense item and the difficulty of charging it proportionately against any policy-holder in such a way as to obtain substantial equity. With the enormous size attained by many of our largest life-insurance companies, with the various activities carried on by them, with agency organizations covering the entire United States and in many cases European countries as well, the aggregate of expenses incurred within a single year totals to a vast sum. This money, of course, must come from the policyholders through their yearly contributions of premiums. The problems arise in large part through, the difficulty of determining what portion of particular items of expense shall be charged against one policyholder as compared with another.

Sections in Chapter 17.

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