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Simple English definitions for legal terms
net premium
Read a random definition: ordinary and necessary business expense
A quick definition of net premium:
A net premium is the amount of money that a person pays to keep their insurance policy active. It is the portion of the premium that covers the estimated cost of claims and does not include additional expenses or commissions. The net premium for life insurance is calculated using an assumed interest and mortality-table rate. Earned premium is the portion of the premium that has already expired, while unearned premium is the portion that has not yet occurred.
A more thorough explanation:
Definition: The amount of money required to keep an insurance policy in effect, after deducting agent commissions and expenses.
Examples:
- Earned premium: The portion of the premium that applies to the coverage period that has already expired. For example, if a one-year insurance policy costs $1,200, the earned premium after three months is $300.
- Unearned premium: The portion of the premium that applies to the coverage period that has not yet occurred. Using the same example as above, the unearned premium after three months is $900.
- Net single premium: The amount of money required to be paid at once to guarantee enough money to pay claims made on an insurance policy, assuming interest accrues at an expected rate and based on a prediction of the likelihood of certain claims.
These examples illustrate how the net premium is calculated and how it differs from other types of premiums, such as earned and unearned premiums. The net premium is the amount of money needed to provide benefits under an insurance policy, after deducting agent commissions and expenses.