Premium Discount Examples

Examples for multi-state, mutli-table; and different anniversary rating dates.;

A. Multi-state, multi-table calculation example:

1. Calculate the average premium discount based on total premium (all states combined), separately using each premium discount table.

2. Next, apply the average discount based on a particular state's discount table (as calculated in step 1.) to that state's premium. Do this for each state.

3. Add up each of the state discounts calculated in step 2.

Total premium = $100,000
Indiana premium = $ 50,000
Iowa premium = $ 50,000

Indiana table of Discounts (Type A) Iowa table of Discounts (Stock)
First $10,000 -- First $5,000 --
Next $190,000 9.1% Next $95,000 10.9%
Next $1,550,000 11.3% Next $400,000 12.6%
Over $1,750,000 12.3% Over $500,000 14.4%

Avg Discount = 8.2% Avg Discount = 10.4%
(10,000x0.0% + 90,000 x 9.1%)/100,000 (5,000x0.0% + 95,000 x 10.9%)/100,000

Amount of IN discount = $4,100 Amount of IA discount = $5,200
(8.2% x 50,000) (10.4% x 50,000)

Total policy discount = $9,300
($4,100 + $5,200)

B. Anniversary Rating Date requires use of two discount tables

The same method of averaging and splitting applies to a policy subject to an anniversary rating date, where, you would apply the old table for part of the policy period and apply the new table for the other part of the policy period.

Calculate average discounts based on the total premium, separately for each discount table. Then apply each table's discount to that portion of the policy's premium that is earned during the appropriate time interval. For example, the old discount table would apply from the policy's effective date to the anniversary rating date (assuming the anniversary rating date is after 1/1/96, the date the new table applies in Indiana). The new table would apply from the anniversary rating date to the renewal date. Then add the pre-anniversary discount and the post-anniversary discount amounts.

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