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
Provision that holds a re-insurer liable for its share of losses even if the ceding company becomes insolvent before paying these losses. For example, XYZ Insurance Co. writes a fire policy ...
Canadian retirement plan much like U.S. individual retirement account (IRA). Here, an employee can contribute on a tax deductible basis C $3500 each year as a member of an employer pension ...
Buying a home or investing in a commercial property in the United States implies complex legal clauses. Perhaps one of the most perplexing ones is the noncontribution mortgage clause. If ...
Forced entry into premises. Coverage is provided under various property insurance contracts such as homeowners and special multiperil insurance (SMP). ...
Protection to maintain the value of a business in case of death or disability of a partner. Upon the death or long-term disability of a partner, insurance can provide for the transfer of a ...
Type of derivative traded on the Chicago Board of Trade that takes the form of an option on a catastrophe futures contract using a call-option spread as the basis for the contract. The ...
Plan initiated by the pension benefit guaranty corporation (PBGC) upon the involuntary termination of a pension plan. With the concurrence of the United States District Court, the PBGC ...
Automatic protection for an insurer against losses that exceed a predetermined loss limit. This reinsurance may be subdivided into three primary types: excess of loss, catastrophe loss, and ...
Form that provides insurance coverage for the insured in the event the damage or destruction of non-owned property reduces or terminates the insured's earnings. For example, if the insured ...
Have a question or comment?
We're here to help.