Valuation Premium

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. Earned Premium

    The amount of total premiums collected by an insurance company ...
  4. Written Premium

    An accounting term in the insurance business used to describe ...
  5. Guaranteed Cost Premium

    Premiums charged for an insurance policy that are not adjusted ...
  6. Investment Income Ratio

    The ratio of an insurance company’s net investment income to ...
Related Articles
  1. Options & Futures

    Permanent Life Policies: Whole Vs. Universal

    If you're looking for life-long security, choosing between these two is the key.
  2. Investing Basics

    The Industry Handbook: The Insurance Industry

    As a result of globalization, deregulation and terrorist attacks, the insurance industry has gone through a tremendous transformation over the past decade. In the simplest terms, insurance of ...
  3. Home & Auto

    Intro To Insurance: Types Of Life Insurance

    By Cathy ParetoLife insurance protection comes in many forms, and not all policies are created equal, as you will soon discover. While the death benefit amounts may be the same, the costs, structure, ...
  4. 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.
  5. Home & Auto

    Bundle Your Insurance For Big Savings

    Bundling your insurance can save you money and time. Read on to see how get the most out of multiline insurance discounts.
  6. Insurance

    Getting Life Insurance in Your 20s Pays Off

    Find out how Americans in their 20s can benefit from a well-thought-out life insurance policy, especially if they are able to build cash value for retirement.
  7. Stock Analysis

    One Undervalued Insurance Company

    Since 2001, White Mountains has increased its book value per share from $151 to over $400 today.
  8. Fundamental Analysis

    How To Value An Insurance Company

    In the insurance space, accurate predictions of metrics such as ROE are important, and paying a low P/B can help put the odds in investors' favor.
  9. Home & Auto

    6 Ways To Save On Insurance

    Love it or hate it, insurance policies are a necessary expense in everyone's life. Learn the top tricks for saving money on your various insurance policies.
  10. Retirement

    Life Insurance: How To Get the Most Out Of Your Policy

    There are many benefits to owning a life insurance policy - if you get the right one for you.
RELATED FAQS
  1. How is my insurance premium calculated?

    An insurance premium is the money charged by insurance companies for coverage. Insurance premiums for services differ from ... 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 >>
  3. What is the average return on total revenue for the insurance sector?

    Learn about the three main segments of the insurance industry, and find out what the average return on revenues is for the ... Read Answer >>
  4. What is term insurance?

    Term insurance is a type of life insurance policy that provides coverage for a certain period of time, or a specified "term" ... Read Answer >>
  5. How much do changes in interest rates affect the profitability of the insurance sector?

    Learn about the relationship between interest rates and insurance company profitability, and how interest rates can affect ... Read Answer >>
  6. Why should value investors consider the insurance sector?

    Discover why value investors should consider the insurance sector. Value investors look for extremes in valuation and sentiment ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center