Validation Period
Length of time required to amortize the excess expenses of acquiring a given group of life insurance policies. In acquiring a policy, a life insurance company may incur expenses (such as the costs of sales commissions, paperwork, and medical examinations) that are greater than the amount allocated for loading in the first year's premium. In effect, this means new policies are acquired at a loss, forcing insurers to dip into surplus to add the new business. After the first year, because expenses are lower, premiums and their invested earnings begin to generate a contribution to surplus, gradually making up for the excess expense of the first year. The length of the validation period depends on many factors, including the levels of GROSS premiums and expenses, but in some companies validation periods can extend for 10 years or more.
Popular Insurance Terms
Interest of a beneficiary in the proceeds of a survivorship annuity. ...
Life insurance policy under which all premiums have already been paid, with no further premium payment due. ...
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Method of determining whether or not coverage is available for a specific claim. If a claim arises out of an event during the period when a policy is in force, the insurance company is ...
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