Definition of Net premium:
A general term that can have many different meanings. This term can refer to a premium with the amount of the agents commission deducted. This term can also mean the portion of the premium required to pay expected future losses. This term can also refer to the premium amount with the amount of dividends that have been appointed to pay part of the premium deducted.
An insurance policy's net premium value differs from the policy’s gross premium value, which does take into account future expenses. The calculated difference between net premium and gross premium equals the expected PV of expense loadings, minus the expected PV of future expenses. Thus, a policy’s gross value will be less than its net value when the value of future expenses is less than the PV of those expense loadings.
Net premium, an insurance industry accounting term, is calculated as the expected present value (PV) of an insurance policy’s benefits minus the expected PV of future premiums. The net premium calculation does not take into account future expenses associated with maintaining the insurance policy. Net premiums, along with gross premiums, help an insurance company to determine how much it owes in state taxes.
How to use Net premium in a sentence?
- The formula to arrive at the net premium is the expected present value (PV) of an insurance policy’s benefits minus the expected PV of future premiums. .
- Net premium and gross premium are useful in calculating the amount of state taxes an insurance company needs to pay.
- Some states' tax laws allow insurance companies to reduce the amount of their taxable gross premium by adding back expenses.
- Net premium is an insurance industry accounting term.
Meaning of Net premium & Net premium Definition