The funds with the insurers are accumulated from various sources, some sources of insurance funds are given below and they are described in detail one by one.
Sources of Insurance Funds
1. Premiums: The main source of funds is the premiums collected by the insurer. The premiums may be single premiums, level premiums, or annuity considerations. The excess of these premiums over the needed premiums for meeting claims and expenses is the source of funds.
2. Interest: The second source of funds is the excess interest earned over the assumed rate of interest. The assumed rates are lesser than the actual rate in most cases. In reverse, the funds will decline.
3. Capital Gains: Funds obtained from the sale of share capital and debentures are included under capital gains.
4. Savings in Expenses: Savings in expense loadings, bonuses, loadings, or mortality savings are also contributing to the funds of the insurers.
5. Non-Payment of Claims: In pure endowment or term insurance, the claims may not arise; therefore, the premiums paid for such benefits are saved. Sometimes, in certain cases, the claimants do not come for payment at all. Thus, the saved money also forms a part of the funds of insurers.
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