Hello all. Hope that you are all well and enjoying our posts. We are discussing Life insurance policy for the last couple of days. So lets continue this topics.
Life insurance policy (Part 3)
Assignment – A policy can be assigned either by endorsement on the policy or by a seperate instrument, and the assignee can sue in his own name. A written notice of the assignment must be given to the insurance office, and the insurer must, upon receiving notice, give a certificate acknowledgeing the receipt.
Claims by death – When a claim arises by death, the claimant is required to prove his title to the satisfaction of the office, and also the fact of the death of the life assured. The former will be probate of will or letters of administration, or if the policy has been dealt with, the deed of assignment. Evidence of death is usually supplied by a registrar’s certificate of death and a certificate of medical attendant. If everything is in order, the claim is usually paid immediately.
Books of Account – The peculiar nature of Life insurance business requires it to maintain numerous subsidiary books of a stastical nature which are not usually to be found in other businesses. Every office has its own set of books so framed as to meet its own requirements.
Proposal register – On receiving the proposal form duly filled in, the details thereof are usually recorded in the proposal register, giving particulars as to the proposal number, the name of proposer, agency, class and amount of policy and such other details as may be required. After the proposal is placed before the management, its fate is recorded in the “Remarks” column.
New premiums – As the strength of a life insurance company is judged by the outside public largely by the amount of the new business it secures each year, it is usual for sound concerns to show the amount of new premiums received during each year quite apart from the renewal premiums. When premiums are paid half yearly or quartely, the whole of the first year’s payment are treated as new premiums. The prescribed form of revenue account under the new insurance act requires that the first years premium should be shown distinctly from the renewals.
New premium cash register records in detail the various amounts received by the head office direct, in course of each day, in respect of new business. Full particulars are given in this book as regards the name of the assured, the number and class of the policy, the date of the policy, the amount assured, the name of the agent through whom the business has been secured, the annual premium and how the same is payable, the amount received, date received, and folio of the policy holders’ Register where the account of the particular assured is opened. The daily total of this book is then entered in one amount in the general cash book in the New premium column and the monthly total of the latter is posted to the new premiums account in the general ledger.
Renewal Premiums Cash Register – This book records full details of renewal premiums received each day by the head office direct, in the same manner as new premiums. The daily total of this book is entered in one amount in the General Cash Book in the Renewal Premiums column, from where it is posted to the credit of Renewal Premiums column, from where it is posted to the credit of Renewal Premiums Account once a month.
Agency and Branch Cash Book – This book is provided with a column for each branch or agency. Entries are made in this book of moneys received from each branch or agency, and the daily total of this book is entered in the General Cash Book in the particular column headed “branch and agency Remittances”. The monthly total of each column in the Agency and Branch Cash book is posted to the credit of particular branch or agency account in the agency Ledger, whereas the monthly total of the “Branch and the Agency Remittances” column in the General cash book is posted to the credit of the Branches and Agencies Account in the General Ledger.
The Petty Cash Book is rulled with various analytical columns usually headed medical fees, commissions, Policy Stamps, Advertisements, Printing and Stationery, Postages, etc., and is kept on the imprest system.
Claims Cash Book – In large businesses, a seperate book is kept giving full details each claim as is paid, the daily total of this book being shown on the credit side of the general cash book in the “Claims Paid” column, the monthly total of which is posted to the debit of Claims Account in the General Ledger.
General Cash Book – The General Cash Book is specially arranged with columns for the usual heads of receipts and expenditure so as to minimize labour in posting, as far as possible. A study of the form as illustrated herein will show that it provides columns, on the debit side, for New and Renewal Premiums, the Remittances from Branches and Agencies, Loans on Policies repaid and Investments realized, Interest on Investments and Loans, Considerations for Annuities granted, and Miscellaneous receipts. On the credit side are provided columns for surrenders, claims, annuities , re-assurances, bonuses, policy-loans, investments, management expenses and miscellaneous payments. The monthly totals of these columns are posted to their respective accounts in the General Ledger.
In every large concerns a separate subsidiary book is kept called Policy-loans received book to record full details of each loan as is repaid, the daily total only of this book beingentered in the general cash book.
In a like manner, seperate subsidiary books may have to be kept for bonuses, surrender values, annuities and re-assurances paid, and only the daily totals of these books would then be recorded in the General Cash Book.
Agents – Almost all life insurance companies obtain the greater part of their new business through the activities of their agents, distributed practically all over the country. Usually, branches are established in the large towns with as organization of agents attached to each. The remuneration of these agents generally takes the shape of a commission on the business secured, a much larger percentage of commission being allowed on new business than upon renewals. It is necessary, therefore, that assurance companies should keep a detailed and exhaustive record of their dealings with each agency or branch.
All insurance companies are henceforward required by the New Act to employ only Licensed Agents for the purpose of canvassing business. The maximum percentage of commission payable to them is fixed by the Act as shown herein, and every company is compulsorily required to maintain a Register of Licensed insurance Agents employed for canvassing business, giving full particulars as to their appointment, etc.
Agency Debit Journal – This book contains a record of all premiums and other moneys which have to be collected by the agents and branches. The account of each individual agent or branch is debited in the agency ledger and the monthly total of each of the nominal column is credited to its respective account of the General Ledger. The monthly total of the “Total Column” of this book is debited to the “Branches and Agencies Account” in the General Ledger.
Agency Credit Journal – This book is written up from periodical statements sent by each branch or agency to the Head Office. The posting from this book are to the credit of each individual Agency or branch in the Agency Ledger, the monthly total of the nominal columns being being debited to the respective nominal accounts in the General Ledger. The monthly total of the “Total Column” of this book is posted to the credit of the “Branches and Agencies Account” in General Ledger.
Branch and Agency Accounts – Whereas in the Branch and Agency Ledger there is a seperate account of each branch or Agency to which posting are made from the Agency Debit and Credit Journals and the Branch and Agency cash book as described above, the General Ledger contains a controlling account styled “Branch and Agencies Account” to which posting are made of the monthly totals from the Agency Debit and Credit Journals and also of the Agency and the Branch column in the general cash book. The Debit balance of the branches and Agencies Account in the General Ledger on any one date will thus always agree with the total debit balances of all the Branch and Agency Accounts as ascertained from the Agency Ledger at that same date.
commission book – The object of this book is to keep in the form of a Ledger Account a detailed record of the amount of commission due to each agent on each individual policy secured through him and to show aganist the several payments made to him or deduced by him from the premiums collected. Such a book not only serves to show how each agent stands in respect of his commission account, but is also very useful in arriving at the total outstanding commission due at the time of balancing. At the head of each account, a note is usually made as to the terms of commission, travelling, office or any other allowance, etc. that may have been agreed upon.
Register of Claims Advised – Each claim is entered in this book immediately it is intimated, whereas full particulars as to when each such claim was admitted and paid are also recorded therein from time to time. This book serves the useful purpose of showing at the end of financial period:
a. Claims intimated but rejected
b. Claims admitted but not paid
c. Claims in course of settlement.
This information is very helpful in estimating the company’s liability in respect of outstanding claims at balancing time.
The new act requires a compulsory maintenance of this Register by every company, in respect of every class of insurance business.
Lapsed and Cancelled Policies Book – In this book are recorded full details of each policy as it lapses or is cancelled.
Register of Policyholders – This is the most elaborately ruled book containing a record of each policy, giving the date, number, amount, and class of the policy, the name of the assured, the annual premium and how the same is payable, date of expiry, and all necessary details regarding each and every policy issued by the company.
The new act requires a compulsary maintenance of this Register by every company, in respect of every class of insurance business.
The policy ledger contains an account of each policyholder to whom a loan has been granted.
The Investment Ledger is kept in the same manner as the one kept in a bank having an account for each class of investment, with columns for facevalue, market-value and interest. This book serves the useful purpose of showing how the periodical interest or dividend on each investment is brought into account, and also helps towards the ascertainment of outstanding interest and dividends at the end of each financial period.