For eg, a company has earned 10% return on premium of say $1000, i.e. a return of $100. The Sum assured is 100,000. The company declares a 3% bonus on this SA, i.e., $3000 on this SA. How is this possible that company earning $100 declares a bonus of $3000?
Hi - it's possible because of discounting. The bonus amount is only expected to be paid at some point in the future (perhaps at maturity in 25 years; time say) so we can take the EPV of that future amount and compare that value of the bonus with the investment return.
