NET ANNUAL PREMIUMS

Paying NSP would be difficult for most people to afford.

That is why companies break this single premium into annual
premiums that would be paid by the insured.
Net annual premiums for life insurance are the amount of
money an individual pays each year to maintain their life
insurance policy after deducting any fees or charges. The net
premium is the actual cost of the insurance coverage provided
by the policy. Net premiums are calculated based on several
factors, including the age and health of the insured, the benefits
provided by the policy, and the duration of the coverage.

Ordinary Net Annual Premium

If the insured wants to continue paying during the contract
period, this can be arranged with the insurance company. If we
consider 𝑦 to be the number of years to which the net premium
will be paid, then:

𝑦 = 𝑐𝑜𝑛𝑡𝑟𝑎𝑐𝑡 𝑝𝑒𝑟𝑖𝑜𝑑

Limited Net Annual Premium

If the insured wants to limit the number of premiums to a
certain number instead of continuing to pay during the contract
period, this can also be arranged with the insurance company. If
we consider 𝑦 to be the number of years to which the net
premium will be paid, then:

𝑦 < 𝑐𝑜𝑛𝑡𝑟𝑎𝑐𝑡 𝑝𝑒𝑟𝑖𝑜𝑑

1
I-Pure Endowment Contract
Ordinary Net Annual Limited Net Annual
Premium Premium
1 𝑫𝑿+𝒏 (𝒚) 1 𝑫𝑿+𝒏
𝑷𝒙 : = 𝑹. 𝑷𝒙 : = 𝑹.
n 𝑵𝑿 − 𝑵𝑿+𝒏 n 𝑵𝑿 − 𝑵𝑿+𝒚

Example (1)
Find the ordinary net annual premium for a pure
endowment contract, for a person aged (35) years, for a period
of (15) years, to grantee for him a face amount of $5000.

Solution

𝑥 = 35 𝑛 = 15 𝑥 + 𝑛 = 50
𝑅 = 5000
It is a pure endowment policy

1 𝐷𝑥+𝑛
𝑃𝑥 : =𝑅×
n 𝑁𝑥 −𝑁𝑥+𝑛

1 𝐷50
𝑃35 : = 5000 ×
15 𝑁35 −𝑁50

2549324
𝑁𝐴𝑃 = 5000 ×
93906145 − 44904187

𝑁𝐴𝑃 = 260.1

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Example (2)
Find the limited net annual premium for a period of 5
years only in example (1).

Solution:

𝑥 = 35 𝑥 + 𝑛 = 50
𝑦=5 𝑛 = 15 𝑦<𝑛
𝑅 = 5000

(𝑦) 1 𝐷𝑥+𝑛
𝑃𝑥 : =𝑅×
n 𝑁𝑥 −𝑁𝑥+𝑦

(5)
1 𝐷50
𝑃35 : = 5000 ×
15 𝑁35 −𝑁40

2549324
𝑁𝐴𝑃 = 5000 ×
93906145 − 75194205

𝑁𝐴𝑃 = 681.2

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Example (3)
Find the ordinary net annual premium for a pure
endowment contract for a person's life of age 26 and for timing
of 24 years, of value $9000.

Solution:

𝑥 = 26 𝑛 = 24 𝑥 + 𝑛 = 50
𝑅 = 9000
It is a pure endowment policy

1 𝐷𝑥+𝑛
𝑃𝑥 : =𝑅×
n 𝑁𝑥 −𝑁𝑥+𝑛

1 𝐷50
𝑃26 : = 9000 ×
24 𝑁26 −𝑁50

2549324
𝑁𝐴𝑃 = 9000 ×
134673795 − 44904187

𝑁𝐴𝑃 = 255.6

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II- Life Annuities
The Deferred Annuity: 𝑅×
𝑁𝑋 −𝑁𝑋+𝑚

Example (4)
Find the net annual premium for deferred life annuity of
10,000 L.E. each year, for a deferred period equal 15 years, for
a person aged 25.
1- If the first payment due at age 40.
2- If the first payment due at age 41.

Solution

𝑷𝟏 𝑷𝟐 𝑷𝟑 𝑷𝟏𝟓
..............
.....
𝒎 = 𝟏𝟓 ..............
𝑹 = 𝟏𝟎𝟎𝟎𝟎 .....
𝒙 = 𝟐𝟓 𝒙 + 𝒎 = 𝟒𝟎

1- If the first payment due at age 40

𝑥 = 25 𝑦 = 𝑚 = 15 𝑅 = 10,000
𝑁𝑋+𝑚
𝑃(𝑚|𝑎̈ 𝑥 ) = 𝑅 ×
𝑁𝑋 − 𝑁𝑋+𝑚
𝑁40
𝑃(15|𝑎̈ 25 ) = 10,000 ×
𝑁25 − 𝑁40
75194205
𝑃(15|𝑎̈ 25 ) = 10,000 ×
139838803 − 75194205
𝑃(15|𝑎̈ 25 ) = 11631.9

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 2- If the first payment due at age 41

𝑁𝑋+𝑚+1
𝑃(𝑚|𝑎𝑥 ) = 𝑅 ×
𝑁𝑋 − 𝑁𝑋+𝑚
𝑁41
𝑃(15|𝑎25 ) = 10,000 ×
𝑁25 − 𝑁40
71752440
𝑃(15|𝑎25 ) = 10,000 ×
139838803 − 75194205
𝑃(15|𝑎25 ) = 11099.5

∴ 𝑷(𝒎|𝒂̈ 𝒙 ) > 𝑷(𝒎|𝒂𝒙 )

Example (5)
Find the net annual premium for deferred temporary life
annuity of 20,000 L.E. for 20 years, for deferred period 20
years, for a person (30) years at the issue date of contract.
1- If the first payment due at age 50.
2-If the first payment due at age 51.

Solution

1- If the first payment due at age 50.

𝑷𝟏 𝑷𝟐 𝑷𝟑 𝑷𝟐𝟎
𝒏 = 𝟐𝟎
.............. ..............
..... .....
𝒎 = 𝟐𝟎
𝑹 = 𝟐𝟎𝟎𝟎𝟎
𝒙 = 𝟑𝟎 𝒙 + 𝒎 = 𝟓𝟎 𝒙 + 𝒎 + 𝒏 = 𝟕𝟎

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 𝑥 = 30 𝑦 = 𝑚 = 50 𝑅 = 20,000
𝑁𝑋+𝑚 − 𝑁𝑋+𝑚+𝑛
𝑃(𝑚|𝑎̈ 𝑥 : 𝑛 ) = 𝑅 ×
𝑁𝑋 − 𝑁𝑋+𝑚
𝑁50 − 𝑁70
𝑃(20|𝑎̈ 30 : 20 ) = 20000 ×
𝑁30 − 𝑁50
44904187 − 8999056
𝑁𝐴𝑃 = 20000 ×
115337048 − 44904187
𝑁𝐴𝑃 = 10195.6

2-If the first payment due at age 51.

𝑁𝑋+𝑚+1 − 𝑁𝑋+𝑚+𝑛+1
𝑃(𝑚|𝑎𝑥 : 𝑛 ) = 𝑅 ×
𝑁𝑋 − 𝑁𝑋+𝑚
𝑁51 − 𝑁71
𝑃(20|𝑎30 : 20 ) = 20000 ×
𝑁30 − 𝑁50
42354863 − 8006174
𝑁𝐴𝑃 = 20000 ×
115337048 − 44904187
𝑁𝐴𝑃 = 9753.6

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DEATH CONTRACTS:
III- Whole Life Insurance Contracts
Ordinary Net Annual limited Net Annual
Premium Premium
𝑀𝑋 (𝑦) 1
𝑀𝑋
𝑃𝑋1 = 𝑅 × 𝑃𝑋 = 𝑅 ×
𝑁𝑋 𝑁𝑋 − 𝑁𝑋+𝑦

Example (6)
Person of age 43 bought a whole life policy, under which
the insurance company will pay $100,000 when he dies, find:
a) The ordinary net annual premiums.
b) Limited net premium for a period of 10 years only

Solution:

𝑀𝑋
𝑅. 𝑃𝑋1 = 𝑅 ×
𝑁𝑋
1
𝑀43
𝑃43 = 100000 ×
𝑁43
1
1570142
𝑃43 = 100000 ×
65154651
𝑁𝐴𝑃 = 241

(10) 1
𝑀43
𝑃43 = 100000 ×
𝑁43 − 𝑁53

1570142
= 100000 ×
65154651 − 37504035

= 567

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IV- Deferred Whole Life Insurance Policy:

𝑀𝑋+𝑚
𝑚/𝑃𝑋1 = 𝑅 ×
𝑁𝑋 − 𝑁𝑋+𝑚

Example (7)
Person of age (42) years old, bought deferred whole life
insurance policy, the insurer will pay 35,000, if death occurs
after (18) years. Find the net annual premium

Solution
𝑀𝑋+𝑚
𝑚/𝑃𝑋1 = 𝑅 ×
𝑁𝑋 − 𝑁𝑋+𝑚
1
𝑀60
18/𝑃42 = 35000 ×
𝑁42 − 𝑁60
1187445
= 35000 ×
68406474 − 23056042

= 916.4
V- Term life insurance policy:

Ordinary Net Annual limited Net Annual

Premium Premium
𝑀𝑋 − 𝑀𝑋+𝑛 (𝑦) 1
𝑀𝑋 − 𝑀𝑋+𝑛
𝑃𝑋1 : 𝑛 = 𝑅 × 𝑃𝑋 : 𝑛 = 𝑅 ×
𝑁𝑋 − 𝑁𝑋+𝑛 𝑁𝑋 − 𝑁𝑋+𝑦

Example (8)
A person who is now 35 years old buy a term life insurance
policy that has the following benefit of $200,000, if he dies
within 30 years of purchasing the contract, compute:
1- Ordinary net annual premium.
2- Limited net annual premium for a period of 15 years only.

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Solution
𝑀𝑋 − 𝑀𝑋+𝑛
𝑃𝑋1 : 𝑛 = 𝑅 ×
𝑁𝑋 − 𝑁𝑋+𝑛
1
𝑀35 − 𝑀65
𝑃35 : 30 = 200000 ×
𝑁35 − 𝑁65
1659457 − 998376
= 200000 ×
93906145 − 15077829
= 1430.9

(𝑦) 1
𝑀𝑋 − 𝑀𝑋+𝑛
𝑃𝑋 : 𝑛 =𝑅×
𝑁𝑋 − 𝑁𝑋+𝑦
(15) 1 𝑀35 −𝑀65
𝑃35 : 30 = 200000 ×
𝑁35 −𝑁50

1659457 − 998376
= 200000 ×
93906145 − 44904187
= 2698.2
VI-Deferred term life insurance policy:

𝑀𝑋+𝑚 − 𝑀𝑋+𝑚+𝑛
𝑚/𝑃𝑋1 : 𝑛 = 𝑅 ×
𝑁𝑋 − 𝑁𝑋+𝑚

Example (9)
Someone aged 40 years, buys a deferred term life insurance
policy, contains the following benefit, 50,000 L.E. if he dies
between 55-75 years, find:
1- Ordinary net annual premium.
2- Limited net annual premium for a period of 10 years only.

Solution
𝑀𝑋+𝑚 − 𝑀𝑋+𝑚+𝑛
𝑚/𝑃𝑋1 : 𝑛 =𝑅×
𝑁𝑋 − 𝑁𝑋+𝑚

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 1
𝑀55 − 𝑀75
15/𝑃40 : 20 = 50000 ×
𝑁40 − 𝑁55
1338046 − 532418
= 50000 ×
75194205 − 32978576
= 954.2
𝑀𝑋+𝑚 − 𝑀𝑋+𝑚+𝑛
(𝑦)
𝑚/𝑃𝑋1 : 𝑛 = 𝑅 ×
𝑁𝑋 − 𝑁𝑋+𝑦

(10) 1
𝑀55 − 𝑀75
15/𝑃40 : 20 = 50000 ×
𝑁40 − 𝑁50
1338046 − 532418
= 50000 ×
75194205 − 44904187
= 1329.9

VII- Net annual premium for Endowment insurance:

a) In case of ordinary NAP
(𝑀𝑥 − 𝑀𝑥+𝑛 ) + 𝐷𝑥+𝑛
𝑃𝑥 : 𝑛 = 𝑅 ×
𝑁𝑋 − 𝑁𝑋+𝑛
b) In case of limited NAP
(𝑦)
(𝑀𝑥 − 𝑀𝑥+𝑛 ) + 𝐷𝑥+𝑛
𝑃𝑥 : 𝑛 = 𝑅 ×
𝑁𝑥 − 𝑁𝑥+𝑦

Example (10)
A life insurance policy issued to a person aged 40 provides the
following:
$70,000 if the insured dies before 60.
$70,000 if he is alive to attain 60.
then find:
a) ordinary net annual premium
b) limited net annual premium = 8 premiums.

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Solution
a) ordinary net annual premium
(𝑀𝑥 − 𝑀𝑥+𝑛 ) + 𝐷𝑥+𝑛
𝑃𝑥 : 𝑛 = 𝑅 ×
𝑁𝑋 − 𝑁𝑋+𝑛

(𝑀40 − 𝑀60 ) + 𝐷60

𝑃40 : 20 = 70000 ×
𝑁40 − 𝑁60

(1607760 − 1187445) + 1749787

= 70000 ×
75194205 − 23056042

= 2913.5

b) limited net annual premium = 8 premiums

(𝑦)
(𝑀𝑥 − 𝑀𝑥+𝑛 ) + 𝐷𝑥+𝑛
𝑃𝑥 : 𝑛 = 𝑅 ×
𝑁𝑋 − 𝑁𝑋+𝑦

(8)
(𝑀40 − 𝑀60 ) + 𝐷60
𝑃40 : 20 = 70000 ×
𝑁40 − 𝑁48

(1607760 − 1187445) + 1749787

= 70000 ×
75194205 − 50255041

= 6091.1

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