Adjusted Premium

AAA

DEFINITION of 'Adjusted Premium'

An adjusted premium is the premium of a life insurance policy that is adjusted by amortizing the costs associated with acquiring the insurance policy. The adjusted premium is equal to the net-level premium plus an adjustment, to reflect the cost associated with the first year initial acquisition expenses.

The adjustment to the net-level premium is an amortization of the expenses associated with establishing the initial insurance policy. The net-level premium is the total cost of the policy (from inception to payout), divided by the number of years the policy is expected to be in force. This term is specific to life insurance companies.

INVESTOPEDIA EXPLAINS 'Adjusted Premium'

The adjusted premium is important for life insurance companies to calculate, as it is the premium used to figure the minimum cash surrender value (CSV). All life insurance policies are required to calculate a CSV due to the Nonforfeiture Provision, which means that the life insurance policy always has a value, even when the policy holder chooses not to use it for its original purpose (payout upon death).

The CSV is the value that could be received by terminating the policy and choosing to "cash-out." The insured is entitled to other choices under the provision, including taking a loan against the policy using the cash value as collateral.

RELATED TERMS
  1. Adjusted Premium Method

    A calculation method used arrive at a life insurance policy's ...
  2. Adjustable Premium

    An insurance premium that can move up or down over time based ...
  3. Insurance

    A contract (policy) in which an individual or entity receives ...
  4. Premium

    1. The total cost of an option. 2. The difference between the ...
  5. Variable Life Insurance Policy

    A form of permanent life insurance, Variable life insurance provides ...
  6. Basket Deductible

    A single deductible that is designed to pay for losses from different ...
Related Articles
  1. Home & Auto

    How An Insurance Company Determines Your Premiums

    Find out how insurers use credit history to build an insurance score and how it could affect your bottom line.
  2. Insurance

    15 Insurance Policies You Don't Need

    Learn how to save money by saying "no" to unnecessary coverage.
  3. Options & Futures

    Getting the Whole Story on Variable Annuities

    Variable annuities are another way to save money tax-deferred - but don't jump in blindly!
  4. Retirement

    Variable Vs. Variable Universal Life Insurance

    Do you know why you might need one policy versus the other? Read on to find out.
  5. Professionals

    What are some examples of common fringe benefits?

    Learn how offering fringe benefits can be a strategic recruitment and retention tool for employers and drastically increase total compensation for employees.
  6. Professionals

    What's the average salary of an actuary?

    Get insight into the intriguing career of risk analysis and forecasting. How much do actuaries make, and how is this field expected to fare in the coming years?
  7. Insurance

    How to Use a Waiver of Subrogation

    A waiver of subrogation means that a party to a contract waives the right to allow someone (usually an insurance company) to sue the other party to the contract in case of a loss.
  8. Retirement

    What is an equity-indexed annuity?

    Understand what an equity-indexed annuity is, its advantages and disadvantages, and how it differs from other annuity investments.
  9. Insurance

    Should You Borrow From Your Life Insurance?

    A loan against the cash value of your life insurance isn't the best way to raise money – but sometimes it's the best choice you have. How to decide.
  10. Insurance

    Life Insurance: How Long Does It Take To Get Paid?

    How to file for a life insurance payout – and how long it takes to receive it. Plus, new ways to plan for payments that provide an income stream.

You May Also Like

Hot Definitions
  1. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  2. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  3. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  4. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  5. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  6. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
Trading Center