BONUS RATE OF NEPAL LIFE

INSURANCE COMPANY LIMITED

1.1 Background of the Study

Bonus, in common parlance, refers to an extra payment received over and the assured income. In
life insurance, the concept of bonus is somewhat similar. One is entitled to the amount of Sum
assured (expected income) and over and above that, there may be bonus payments too. When a life
insurance company makes profit (surplus), it is supposed to distribute a part of that profit to its
policyholders, in the form of bonus payments. Equate this with companies declaring dividends on
making profits in case of equity shares. The surplus in a life insurance company may arise after
valuation of the insurer's assets and liabilities and SO, any excess of assets over liabilities is the
surplus amount. This surplus gets distributed among the policyholders at the end of each financial
vear in the form of bonus (Dhawan, 2019).

Based on the actual experience of the 'with-profit fund, the insurer declares the rates of bonus for
the previous financial year, i.e. in arrears. The quantum of surplus and bonus mainly depend on
the amount of investment income earned while other factors such as mortality, expenses also play
a part. Expectation of interest rates in the future also plays an important ole while declaring the
bonus amount. Get a fix on the term of the policy. For example, you want to save for 15 or 20
years. Ask the agent to show the bonus rate declared by the insurer in the previous year for the
same duration. In the present day interest rate scenario, the total amount of bonuses over 20 years
will just be equal to the sum assured. This should give some idea to the policyholder about the
maturity value (sum assured plus bonus) of a policy to be able to meet his/her long-term goals
(Dhawan, 2019).

Policies with profits are very often paid by annual premiums. If this is the case, it is usually Stated
that the annual premium increases at the same excess rate credited to the mathematical reserve so
that, as like as in the single premium contracts, also the benefits are adjusted in the Daine measure
in order to maintain the actuarial equilibrium with regard to the residual policy period. Since the
pioneering work by Brennan and Schwartz (1976) and Boyle and Schwartz (1977), a great
prominence has been given so far in the financial and actuarial literature to the issues of pricing
and hedging equity-linked life insurance contracts with minimum guarantees. In contrast with this,
participating policies have not been studied very much in a contingent-claims framework 2,
although they are the most important life insurance products in terms of market size. This is
probably because the minimum interest rate guaranteed used to be far lower than the market rates,
and therefore the risk associated to the issue of the guarantee seemed to be quite negligible and
was not seriously considered a threat to the solvency of a 1life insurance comnpany. Now that the
economic setting has dramatically capsized in most industrial countries and the market interest
rates have sunk up to very low levels3, this threat has become impending. Then an accurate
assessment of all the parameters characterizing the guarantees and the bonus mechanism
constitutes a crucial problem in the management of a life insurance company. The company is
focusing on providing qualitative services of International Standard. The company has strong IT
infrastructure. All Branches of Nepal Life has been connected through wide area networking to
provide better customers service.

Nepal Life, established under the Company Act 2053 and Insurance Act 2049 as a public limited
company on 2058/01/21 (04/05/2001). Nepal Life is the foremost life insurance company
established by private investors. The promoters of the company are a group of well-known
businessmen and business houses of Nepal. Within the twenty one years of operation Lo Company
has set up an excellent business record and has a strong financial position. The company has
insured itself with well-known reinsurance companies "Hannover Re Life Reinsurance Company",
Germany and "Nepal Reinsurance Company Ltd", Nepal.

1.2 Statement of the Problem

Many researchers have found there is positive as well as negative relation; there is still conflict
between the variables. That's why the researcher has choosen this topic. The statements of the
problem of the study are as follows:

 What is the bonus trend of Nepal Life Insurance Company in recent time?
 what is the maximum and minimum bonus rate of Nepal Life Insurance Company?
1.3 Objectives of the Study

The foremost objective of this project work report is to analyze the bonus rate of NLIC. The
Specific objectives are presented as below:

 To analyze the bonus rate of Nepal Life Insurance Company Limited.

 To analyze the different between bonus rate plans of NLIC.

1.4 Rationale of the Study

Here is several rationale of the study. Bonus rate provides a sum assured to the nominee in case of
the unexpected death of the insured. Insurer provides add on rider benefits to enhance the benefits
of an insurance policy. Bonus in life insurance is exclusively an extra amount paid above the sum
assured amount.

1.5 Research Methodology

Research methodology reflects how the data will as presented by using various tools and
techniques. It is also a main part of a report as it shows how clearly and effectively the researcher
will have presented a report. The main methods that will be for the study in order to prepare this
report are as follows:

1.5.1 Research Design

The researcher will have adopted descriptive research design for the investigation. The main goal
of this type of research is to describe the data and characteristics about what is being studied.

1.5.2 Nature and Sources of Data

While preparing this report data will be collected from secondary sources. To analyze the bonus
rate of insurance company, the researcher will be used quantitative data. Data collection techniques
will be used by secondary collection methods, which are annual report, articles, journals and
websites.

1.5.3 Population and Sample

For the purpose of the study, it will not possible to collect information and data from the all
Organization during the short period. Therefore, the researchers will have chosen entitled on bonus
rate of Nepal Life Insurance Company limited. There are 13 life insurance company in Nepal but
the researcher will have been selected Nepal Life Insurance Company Limited as using
convenience sampling techniques.

1.5.4 Data Analysis Tools

This is the method where data will be presented by using various tools by which the reports will
be presented in impressive and attractive way. Collected data from different sources will be
presented in the following:

A. Table
B. Trend Line
C. Statistical Tools
 Mean
 Standard Deviation
 Coefficient of Variance
 Minimum
 Maximum

1.6 Limitations of the Study

In case of preparing this report, the study is based on the following limitations.

 This study will be based on the secondary data. This report will be based on only eleven-year
data from the fiscal year 2075/76 to 2079/80.
 This report will be related to Nepal Life Insurance Company Limited.
 This study will be based on financial & statistical tools are used.
 This company will have not published latest bonus rate.

1.7 Organization of the Study

The present study has been organized into 3 chapters. They are whole report summarized by listed
below.

Chapter -I: Introduction

The first chapter includes background of the study, statement of the problem, objectives of the
study, rationale of the study, research methodology, review of literature and limitations of the
study.

Chapter- II: Results and Analysis

The second chapter included data presentation, analysis and results and findings.

Chapter- III: Summary and Conclusion

The third chapter includes summary and conclusion.

Lastly, bibliography and appendices are added at the end of this report.

1.8 Time Allotment

3 days
Topic Selection
2 days
Proposal writing
5 days
Data collection
7 days
Data presentation and analysis
5 days
Preparation of report
4 days
Profit reading
5 days
Setting and Printing
3 days
Review of literature
TOTAL 34 days
Submitted by
……………..
BBS 4th year
Aims College, Butwal