A net premium valuation is an
actuarial calculation, used to place a value on the liabilities of a
life insurer
Life insurance (or life assurance, especially in the Commonwealth of Nations) is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death ...
.
Background
It involves calculating a present value for the contractual liabilities of a contract, and deducting the value of future
premiums. Both
contractual liabilities, and future premiums in this calculation allow only for mortality and interest. The key with a net premium valuation is that the premiums being valued are theoretical measures - they make no reference to the actual premiums being charged by the insurer.
This technique is a well-established actuarial valuation method, that became popular because of its simplicity, consistency, and ease of calculation.
New methods
With the advent of computers, the more complicated so-called
gross premium valuation calculation (which is also more realistic than the net premium valuation) has become much more feasible, and is displacing the archaic net premium valuation further from its historical position of prominence.
See also
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Gross premiums written
In the insurance industry, gross premiums written is the sum of both direct premiums written (see next paragraph) and assumed premiums written, before deducting ceded reinsurance. Direct premiums written represents the premiums on all policies the ...
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Life Assurance
Life insurance (or life assurance, especially in the Commonwealth of Nations) is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death ...
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Term life insurance
Term life insurance or term assurance is life insurance that provides coverage at a fixed rate of payments for a limited period of time, the relevant term. After that period expires, coverage at the previous rate of premiums is no longer guarant ...
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Permanent life insurance
Life insurance (or life assurance, especially in the Commonwealth of Nations) is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money upon the death ...
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Whole life insurance
Whole life insurance, or whole of life assurance (in the Commonwealth of Nations), sometimes called "straight life" or "ordinary life", is a life insurance policy which is guaranteed to remain in force for the insured's entire lifetime, provided r ...
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Universal life insurance
Universal life insurance (often shortened to UL) is a type of cash value life insurance, sold primarily in the United States. Under the terms of the policy, the excess of premium payments above the current cost of insurance is credited to the cash ...
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Variable universal life insurance
Variable universal life insurance (often shortened to VUL) is a type of life insurance that builds a cash value. In a VUL, the cash value can be invested in a wide variety of separate accounts, similar to mutual funds, and the choice of which of ...
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Corporate-owned life insurance
Corporate-owned life insurance (COLI), is life insurance on employees' lives that is owned by the employer, with benefits payable either to the employer or directly to the employee's families. Other names for the practice include janitor's insuran ...
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Servicemembers' Group Life Insurance
Servicemembers' Group Life Insurance (SGLI) is a life insurance program available to all active duty and reserve members of the uniformed services of the United States. Supervised by the United States Department of Veterans Affairs, the program i ...
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Segregated funds
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Annuity
In investment, an annuity is a series of payments made at equal intervals.Kellison, Stephen G. (1970). ''The Theory of Interest''. Homewood, Illinois: Richard D. Irwin, Inc. p. 45 Examples of annuities are regular deposits to a savings account, m ...
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Independent financial adviser
Independent financial advisers (IFAs) are professionals who offer independent advice on financial matters to their clients and recommend suitable financial products from the ''whole of the market''. The term was developed to reflect a United Kin ...
s
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Estate planning
Estate planning is the process of anticipating and arranging, during a person's life, for the management and disposal of that person's estate during the person's life, in the event the person becomes incapacitated and after death. The planning incl ...
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Retirement plan
A pension (, from Latin ''pensiō'', "payment") is a fund into which a sum of money is added during an employee's employment years and from which payments are drawn to support the person's retirement from work in the form of periodic payments ...
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False insurance claims
Life insurance
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