DEFINITION of 'Valuation Premium'

The rate set by a life insurance company based on the value of the company's policy reserves. The valuation premium is calculated by an insurance company. The company ensures that, first and foremost, it has adequate policy reserves to cover payouts. Once the value of the policy reserves is determined, the insurance company can calculate the valuation premium that will cover its liabilities. In this manner, the insurance company can make sure that it will have the assets necessary to cover all of its policies.

BREAKING DOWN 'Valuation Premium'

A valuation premium is a life insurance calculation that bases charges for premiums on the company's liabilities. At times, an insurance company may opt to set a premium that is lower than the calculated valuation premium if their experience and statistical records indicate that a lower premium is justified. In the event that a lower premium is charged, the insurance company would be obligated to hold the difference in a deficiency reserve.

RELATED TERMS
  1. Developed To Net Premiums Earned

    The ratio of developed premiums to net premiums earned over a ...
  2. Insurance Premium

    The amount of money that an individual or business must pay for ...
  3. Guaranteed Cost Premium

    Premiums charged for an insurance policy that are not adjusted ...
  4. Premium Balance

    The amount of premium that is owed to an insurer for a policy, ...
  5. Investment Income Ratio

    The ratio of an insurance company’s net investment income to ...
  6. Basic Premium Factor

    The acquisition expenses, underwriting expenses and profit, as ...
Related Articles
  1. Financial Advisor

    Understanding Life Insurance Premiums

    When buying permanent life insurance, what amount of premium should you pay for the coverage?
  2. Insurance

    5 Ways to Lower Life Insurance Premiums

    Learn several effective methods for lowering life insurance premiums. These include quitting smoking and considering term life insurance.
  3. Insurance

    Understanding Taxes on Life Insurance Premiums

    Learn about the tax implications of life insurance premiums, including when they might be taxable and whether they are tax deductible.
  4. Insurance

    Life Insurance: putting a Price on Peace of Mind

    Would your death leave loved ones financially stranded? Find out how to ease your mind and keep them protected.
  5. Insurance

    Explaining Insurance

    Insurance is a form of contract between an individual and an insurance company that spreads risk in exchange for premium payments.
  6. Insurance

    How To Invest In Insurance Companies

    Knowing the special circumstances that insurance companies operate under helps in evaluating whether or not a listed insurance company is a good investment and whether the economic environment ...
  7. Insurance

    Life Insurance Premium Financing: Worth the Risk?

    Life insurance premium financing lets high net worth individuals buy costly insurance without liquidating assets.
  8. Insurance

    The Basics of Premium Financing for Life Insurance

    Here's a look at the role premium financing plays in life insurance and how it works.
RELATED FAQS
  1. What caused the European / Eurozone debt crisis?

    Understand how insurance companies price insurance premiums, and learn the importance of data and statistics in the insurance ... Read Answer >>
  2. Why is my insurance premium so high/low?

    Insurance premiums can be affected by many factors including: type and amount of risk size of deductible amount of coverage ... Read Answer >>
Hot Definitions
  1. Financial Statements

    Records that outline the financial activities of a business, an individual or any other entity. Financial statements are ...
  2. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  3. Money Market

    A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. ...
  4. Block (Bitcoin Block)

    Blocks are files where data pertaining to the Bitcoin network is permanently recorded.
  5. Fintech

    Fintech is a portmanteau of financial technology that describes an emerging financial services sector in the 21st century.
  6. Ex-Dividend

    A classification of trading shares when a declared dividend belongs to the seller rather than the buyer. A stock will be ...
Trading Center