Adjusted Premium Method

DEFINITION of 'Adjusted Premium Method'

A calculation method used arrive at a life insurance policy's cash surrender value (CSV). There are three steps in the Adjusted Premium Method.

1. Calculate the first-year expense allowance
2. Arrive at the Adjusted Premium
3. Substitute the adjusted premium for the Net Level Premium used in the equation for arriving at the Prospective Reserve.

This is a term specific to the insurance industry.

BREAKING DOWN 'Adjusted Premium Method'

The cash surrender value (CSV) is the cash-out value that the policy holder would be paid upon cancellation of the policy. Adjusted Premium Method is not to be confused with the Net Level Premium Method, which is a way to calculate the Adjusted Premium (as seen in step three).