Yearly Price Of Protection Method

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DEFINITION of 'Yearly Price Of Protection Method'

A method used in actuarial analysis, which is often used in the insurance industry. The Yearly Price Of Protection Method is used to find out the cost of protection of a policy that includes a savings component such as a cash value life insurance policy. It relates to computations that involve insurance probability estimates.

INVESTOPEDIA EXPLAINS 'Yearly Price Of Protection Method'

The cost of this protection is based on the cash value at the beginning of the year plus premiums paid for that year. The determined total is multiplied by an assumed interest rate factor of (1+i). The result equals the part of the life insurance premiums paid that can be received if the policy is canceled, in other words, the cash surrender value which only applies to ordinary life and limited policies, not term insurance.

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