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This example shows how excess events can arise on a policy where there has been more than one payment of premium and how unused net allowable payments are carried forward to later years.

Transactions

• On 10 January 2011 a policy is taken out with an initial premium of 拢10,000
• On 27 August 2012 a part surrender of 拢500 is made
• On 5 February 2013, a further premium of 拢5,000 is paid
• On 17 July 2015, a part surrender of 拢4,000 is made.
• On 27 October 2017, a part surrender of 拢3,000 is made.

Periodic calculations and excess events

Each ongoing insurance year runs from 10 January to 9 January of the following year.

Year 2 (10 January 2012 to 9 January 2013):

The allowable element is 2 x 5% x 拢10,000 = 拢1,000.

Since the amount of the part surrender (拢500) does not exceed the net allowable element, no excess event arises for this year.

Year 5 (10 January 2015 to 9 January 2016):

The total of allowable elements is (5 x 5% x 拢10,000) + (3 x 5% x 拢5,000) = 拢3,250, that is 5 years鈥� allowance relating to the initial premium and 3 years鈥� relating to the later premium. No allowable elements were previously taken into account, as there have been no previous excess events, so net total allowable payments is 拢3,250.

Net total value of parts surrendered is 拢500 + 拢4,000 = 拢4,500. This exceeds the net total allowable payments by 拢1,250 therefore an excess event arises at the end of the insurance year on 9 January 2016 and the amount of gain is 拢1,250.

Year 7 (10 January 2017 to 9 January 2018):

Total allowable elements is (7 x 5% x 拢10,000) + (5 x 5% x 拢5,000) = 拢4,750. Allowable elements of 拢3,250 were taken into account on the excess event in year 5 so net total allowable payments is 拢1,500.

Total value of parts surrendered is 拢500 + 拢4,000 + 拢3,000 = 拢7,500 but part surrender values totalling 拢4,500 were brought into account on the excess event in year 5 so must be deducted. Therefore, the net total value of parts surrendered is 拢3,000.

This exceeds net total allowable payments, so an excess event arises on 9 January 2018 and there is a chargeable event gain of 拢1,500.