Net Level Premium Reserve
Definition of "Net level premium reserve"
Fund that comes into existence because premiums for ordinary life insurance policies in their early years are higher than necessary for the pure cost of protection. These excess premiums, plus the interest credited, create the net level reserve. When an insured dies, the reserve comprises part of the death benefit. The net premium is calculated according to this fundamental actuarial equation: present value of future premiums = present value of future benefits.
This relationship holds only at the point of issue of a life insurance policy. Thereafter, future benefits will exceed future premiums because fewer premiums are left to be paid and benefits are coming closer to being due. The reserve makes up the difference between the future benefits and future premiums at any point. This reserve can be calculated on either a prospective or retrospective basis, but it is important to note that the various state minimum reserve valuation laws are stated in terms of the prospective basis.
Popular Insurance Terms
Arrangement, often funded by life insurance, to continue an employee's salary in the form of payments to a beneficiary for a certain period after the employee's death. The employer itself ...
Factors influencing the amount of life insurance to purchase, such as marketable skills of spouse, age of children, savings, investments, number of future working years' expectancy, amount ...
Amount designated as a future liability for life or health insurance to meet the difference between future benefits and future premiums, net level premium is determined so that this basic ...
Guarantee of payment of the original judgment of a court. When a judgment is appealed, a bond is usually required to guarantee that if the appeal is unsuccessful, funds would be available ...
When we are young, we usually don’t take our retirement seriously and don’t even know the definition of an Individual Retirement Account (IRA). We become more preoccupied with ...
Additions or subtractions of a mortality table to reflect changing levels of mortality due to advancement in medicine, geriatrics, and sanitation. These adjustments make a mortality table ...
difference between the face value of a permanent life insurance policy and its accrued cash value. The pure cost of protection is based on this difference. For example, if the face value ...
Injury that continues after a wound from physical or psychic entry. (The latter is a wound that makes a lasting impression on the mind, especially upon the subconscious mind; for example, a ...
Non qualified plan of deferred compensation whose goal is to compensate key employees without having to provide similar benefits to rank and file employees. The trust is irrevocable, and ...
Have a question or comment?
We're here to help.