Calculating the value of the premium: importance of premium
One of the fundamental features of insurance is that all those wishing to be insured must contribute to the ‘common fund’ a fair and equitable premium.
The concept of ‘premium’ is important in IPT because it forms the basis of the tax. Section 49 of the Finance Act 1994 states:
Tax shall be charged on the receipt of a premium…
Section 50(2) describes the chargeable amount as:
… such amount as, with the addition of the tax chargeable, is equal to the amount of the premium.
The purpose of this section is to enable you to determine what the amount of the premium is.