Calculates how to fairly split the premium costs amongst shareholders or partners in the business.
What premium equalisation means in a little more detail.
Premium equalisation makes sure that when business owners take out shareholder or
partnership protection they only pay an amount that is commercially relative to the benefits
they stand to gain. This means that once the premiums have been shared, a younger life
with a smaller shareholding (sum assured) should pay a relatively larger proportion of the
overall premiums than an older life with a larger shareholding in the same arrangement.
This is because the potential benefit to the younger life is greater.