Definition of "Validation period"

Length of time required to amortize the excess expenses of acquiring a given group of life insurance policies. In acquiring a policy, a life insurance company may incur expenses (such as the costs of sales commissions, paperwork, and medical examinations) that are greater than the amount allocated for loading in the first year's premium. In effect, this means new policies are acquired at a loss, forcing insurers to dip into surplus to add the new business. After the first year, because expenses are lower, premiums and their invested earnings begin to generate a contribution to surplus, gradually making up for the excess expense of the first year. The length of the validation period depends on many factors, including the levels of GROSS premiums and expenses, but in some companies validation periods can extend for 10 years or more.

image of a real estate dictionary page

Have a question or comment?

We're here to help.

*** Your email address will remain confidential.
 

 

Popular Insurance Terms

Break in commercial activities due to the occurrence of a peril. Coverage against business interruption by various named perils can be obtained through insurance. ...

Benefits provided to and obtained by those insured, while still alive. They include the annuity, cash surrender value, disability income, policy loan, and waiver of premium (WP). ...

Right of the policy owner as listed in a policy. An insured has the right to exercise all privileges and receive all benefits of the policy except when restricted by the right of an ...

Trust in which a charity receives income from a donated asset for a specified number of years that it is held in that trust. After the specified period concludes, the principal is ...

Same as term: engineering approach; human approach ...

Policy that pays benefits to an insured who becomes ill or injured, provided that documentation is offered to confirm the illness or injury. ...

Damaged insured property in receipt by the insurance company resulting from abandonment and salvage, subrogation, and reinsurance. ...

Vehicle through which the federal estate tax credit is protected from estate tax payment. The procedure is to leave the federal estate tax credit to the shelter trust with the trust ...

Modified enhanced ordinary life in which there is a combination of dividends purchasing PAID-UP ADDITIONS, TERM LIFE INSURANCE, and ORDINARY LIFE insurance. The structure of ...

Popular Insurance Questions