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

Legal case in which the United States Supreme Court held that pension assets are to be excluded from the bankruptcy estate of the plan participant. ...

Insurance established under the federal Railroad Retirement Act for railroad employees, covering death, retirement, disability, and unemployment. Benefits are adjusted for cost of living ...

In insurance, legal authority obtained by an insurance company, agent, broker, or consultant that permits them to do business in a particular state. The document issued by the state shows ...

Cash value of life insurance that accumulates according to a table in a policy. It reflects premiums in the early years that exceed the pure cost of protection during that period. If a ...

Provision of a treaty reinsurance contract stating that if an insurer fails to report a risk that would normally be covered, the re insurer is still liable for the risk. ...

Method by which each member of an insurance pool shares in each and every risk written by the other members of the pool. ...

Association whose membership is composed of surety bonding companies. The association's primary purpose is to act as a rating bureau for member companies by collecting statistics and ...

professional designation earned after the successful completion of three national examinations given by the insurance institute of America (IIA). Covers such areas of expertise as ...

Apparent agreement that is not a valid contract. ...

Popular Insurance Questions