> For the complete documentation index, see [llms.txt](https://docs.takadao.io/takadao-docs/llms.txt). Markdown versions of documentation pages are available by appending `.md` to page URLs; this page is available as [Markdown](https://docs.takadao.io/takadao-docs/part-b.-takadao-the-daos/05-tdaos-tokens-aka-membership-credits/credits-determine-insurance-benefit.md).

# Credits determine insurance benefit

* Credits = track member contributions
* Benefit = credits x B.BM x BM.A
* Credits burned once payout made, other credits decrease in value
* The decrease in value of credits represents the cost of protection

In the event of a successful benefit payout, the benefit is determined by an individual’s annual contribution and the assigned Benefit Multiplier. 

<table data-header-hidden><thead><tr><th></th><th width="72"></th><th></th><th width="50"></th><th></th><th width="40"></th><th></th></tr></thead><tbody><tr><td>Benefit payout</td><td>=</td><td>Base Benefit Multiplier (B.BM)</td><td>x</td><td>Benefit Multiplier Adjuster (BM.A)</td><td>x</td><td>Individual Annual Contributions </td></tr></tbody></table>

The Benefit payout is paid from the money held in the tDAO treasury which will reduce the overall funds in the treasury. Credits are also burned as part of this transaction, however, they are not burned in the corresponding amount; instead, the entire Credit balance of the [member making the claim will be burned.](#user-content-fn-1)[^1]

| ![](https://lh7-us.googleusercontent.com/docsz/AD_4nXc6B7M_bq14uPhkTGOpkzVfhRWSw73NA3wTfJedSP-HqvM36GFXYXL2TeE_2KFgbrxa6wq1N-0e6JmlMKp4XXmEO491mgvqSWC247PQxxl9cQuljcJ4jCdmHWL5jAAQKH3T14xS1FR-V-qbPV6lh0ATE84?key=ANIS1ST1ItkXCqB9L9mbyg) | <p>Example: </p><p><br></p><p>At the time of issuance or minting, 10 USDC is added to the DAO fund and 10 credits are minted and issued to new members.</p><p><br></p><p>The DAO fund now has 10 USDC and there is 10 CR outstanding which implies a value of 1 CR = 1 USDC. </p><p><br></p><p>A successful claim is made by a member who has 1 CR and has been assigned a benefit multiplier of 5x. The benefit payout amount is therefore 1 CR x (BM) 5 = 5 USDC. </p><p><br></p><p>5 USDC is transferred out of the DAO fund to the beneficiary and 1 CR is burned. After recalibration, there is now 5 USDC for 9 outstanding Credits which implies a value of 1 CR = 0.56 USDC. </p><p><br></p><p>This example assumes that there are no additional tokens minted and there are no investment returns or token redemptions.</p> |
| ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |

The example above shows the change in value of the Credit in the event of a claim. It should be clear that the Credit value decreases for all members in the event of a claim. If a member chooses to cash his surplus out now by redeeming his Credit, it will be less in value than at mint. This reduction in value represents the cost of his membership for the period from first mint till the time of redemption.

[^1]: This is assuming that the value of the tokens burned is less than the benefit payout amount.


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