Final Accounts of Life Insurance

Companies
M.Com. - Sem III
Terms Used
Insured :
The person whose risk is covered is called Insured / Assured

Insurer :
The person who insures is called as insurer

Insurance Premium :
It is the consideration for which the insurer agrees to cover the risk of
the insured
Terms Used
Sums Insured / Assured :
It is the amount for which policy is taken

Term of Policy :
It is the period for which insurance policy is taken

Insurance :
It is the term used when compensation is paid on happening of an event
which may or may not happen
Terms Used

Assurance :
When certain sum s paid on happening of a certain event which is going
to happen

Re-insurance :
One insurance company (Re-insurer)insures the whole or part of the
subject matter which is already insured by another insurance company
(Re-insured / Ceding Company)
Terms Used
Surrender Value :
It is the value of the policy surrendered by the insured before the expiry
of the term of the policy on a date of surrender.

Bonus :
The policy holders are entitled to receive the bonus at the rate declared
(on the sum assured ) by the insurance company. It is in the case of
with profit policies.
Terms Used

Interim Bonus :
It is the bonus declared between the date of two vauation Balance
Sheets .
Life Assurance Fund :
• It is a fund maintained to meet the aggregate liability on all the outstanding
policies.
• Profit (Surplus) of Life Insurance Companies is considered to have been
earned when
Life Assurance Fund > its Net Liability on all Outstanding Policies
• Net Liability on all Outstanding Policies =
Expected future libility > Value of premiums payable (on those
policies )
• LIC of India computes the net liability every 2 years
• Hence Life Insurance Companies cannot decide profit every year.
Net Profit for the Inter-valuation Period
Surplus as per Valuation Balance Sheet _______

Add : Interim Bonus ________

________
Less : Loss on Investment to be written off
________
Less : Provision for Taxation

Total Surplus after Taxation ________

_________
Less : Surplus at the beginning of the inter-valuation
period
Net profit for the Inter-valuation Period ________
Distribution of Surplus
i) Total Surplus after taxation _______

ii) Less : Surplus to be carried forward _______

iii) Surplus available for distribution (i - ii) _______

iv) Share of Shareholders @ 5 % _______
v) Share of Policy holders @ 95% _______

vi) Less : Interim Bonus already paid _______

vii) Amount due to Policy holder (v - vi) _______

Journal Entries
Life Assurance Fund A/C Dr. P/L A/C Dr.
To P/L A/C To General Reserve A/C
(with transfer to total profit) (With transfer to general Reserve)
P/L A/C Dr. P/L A/C Dr.
To Investment / Investment Fluctuaton To Bonus Payable in cash A/C
Reserve A/C
(With Bonus Payable)
(With loss on investment valuation)
P/L A/C Dr. P/L A/C Dr.
To Provision for Tax A/C To Life Assurance Fund A/C

(With Tax Provisison) (With Reversionary Bonus )

Reversionary Bonus
• The profits allocated to each participating policy are paid in the form
of a Reversionary Bonus.
• A reversionary bonus adds value to the total amount payable to the
policyholder or nominee.
• A reversionary bonus is usually declared at the end of every financial
year
• It is payable at the time of a claim.
• Financial ststements (Bookmark)
• llustration 3,4,6 and 11