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. Variable Life Insurance Policy

    A form of permanent life insurance, Variable life insurance provides ...
  4. Premium

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

    A contract (policy) in which an individual or entity receives ...
  6. Lloyd's Of London

    A British insurance market where members join hands as syndicates ...
Related Articles
  1. How An Insurance Company Determines ...
    Home & Auto

    How An Insurance Company Determines ...

  2. 15 Insurance Policies You Don't Need
    Insurance

    15 Insurance Policies You Don't Need

  3. Getting the Whole Story on Variable ...
    Options & Futures

    Getting the Whole Story on Variable ...

  4. Variable Vs. Variable Universal Life ...
    Retirement

    Variable Vs. Variable Universal Life ...

comments powered by Disqus
Hot Definitions
  1. Last In, First Out - LIFO

    An asset-management and valuation method that assumes that assets produced or acquired last are the ones that are used, sold ...
  2. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  3. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  4. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  5. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  6. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
Trading Center