Net Level Premium Reserve
Definition of "Net level premium reserve"
Fund that comes into existence because premiums for ordinary life insurance policies in their early years are higher than necessary for the pure cost of protection. These excess premiums, plus the interest credited, create the net level reserve. When an insured dies, the reserve comprises part of the death benefit. The net premium is calculated according to this fundamental actuarial equation: present value of future premiums = present value of future benefits.
This relationship holds only at the point of issue of a life insurance policy. Thereafter, future benefits will exceed future premiums because fewer premiums are left to be paid and benefits are coming closer to being due. The reserve makes up the difference between the future benefits and future premiums at any point. This reserve can be calculated on either a prospective or retrospective basis, but it is important to note that the various state minimum reserve valuation laws are stated in terms of the prospective basis.
Popular Insurance Terms
Flow of funds out of one financial instrument, whose interest rates are low, into another financial instrument, whose interest rates are higher. In the early 1980s, insurance companies ...
Insured sum paid regularly to a married partner (usually a wife but sometimes a husband) of a retired worker. There are several forms: The Federal Retirement Equity Act mandates a spouse's ...
Personal and business property insurance that combines in one policy several types of property insurance covering numerous perils. However, no liability insurance is provided. ...
Health insurance contract that is renewable at the option of the insurer. On the anniversary date of the contract, the insurer has the right to decide whether or not to renew. ...
Coverage for items that are on consignment, including exhibits, goods up for auction, and goods awaiting someone's approval. The stipulation for coverage is that these items cannot be under ...
Coverage in automobile insurance providing protection in the event of physical damage (other than collision) or theft of the insured car. For example, fire damage to an insured car would be ...
Law under which one state gives favorable tax treatment to an insurance company domiciled in a different state that is admitted to do business, provided the second state does the same for ...
Payment due on the renewal of an insurance policy. The premium may be adjusted up or down to reflect the loss experience of the underwriting classification to which the insured belongs. ...
Short-term investments, to include the following: commercial paper, interest-bearing balances with banks, federal funds sold and securities purchased under agreements to resell, trading ...
Have a question or comment?
We're here to help.