Preliminary Term
Definition of "Preliminary term"
Life insurance accounting method that does not require any terminal reserve for a policy at the end of the first year. First-year policy acquisition expenses, such as agent commission, medical examination, and premium tax, are often too large to leave enough of the end-of-the-year premium for addition to the premium reserve required under state full valuation reserve standards. In order to avoid taking the difference between the amount of the premium remaining and the required addition to reserves out of the insurance company's surplus account, the full preliminary term reserve valuation method is sometimes used. This leaves more of the premium available to cover acquisition cost and first-year claims.
Popular Insurance Terms
worth of each accumulation unit at the end of each valuation period for a variable annuity. This value is similar to that of the net asset value for a mutual fund. ...
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Reserves required by state regulators. Because regulators must assure that an insurance company remains solvent and that it can pay future claims, they set conservative standards for ...
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