NET VALUE OF A POLICY Meaning and
Definition
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The "net value of a policy" refers to the total economic worth or value of an insurance policy after deducting any outstanding debts, fees, or liabilities that may be associated with it. It is essentially the amount of money an insurance policy is worth to the policyholder or owner, taking into account any applicable deductions.
The net value of a policy is typically calculated by subtracting the policy's outstanding loan balance, unpaid fees, and any surrender charges or penalties from its face value or accumulated savings. It represents the amount that the policyholder would receive as a cash payout if they were to cancel or surrender the policy.
The net value of a policy is an important metric for policyholders, as it allows them to assess the actual worth of their insurance investment. It is particularly vital for cash value insurance policies, such as whole life or universal life insurance, where a portion of the premium paid by the policyholder accumulates as a cash value over time.
This net value can be influenced by various factors, including the length of time the policy has been in force, the premiums paid, the investment performance of the policy, and any outstanding loans or withdrawals. It is advisable for policyholders to regularly monitor their policy's net value to make informed decisions regarding its management, such as adjusting premium payments, making loans, or surrendering the policy altogether.
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The amount of reserve pertaining to a policy, being the difference between the amount due on maturation of the policy and the present value of the net premiums, still to be paid; the legal net value, is the net value computed according to a rate of interest assumed and a mortality table prescribed by law.
A practical medical dictionary. By Stedman, Thomas Lathrop. Published 1920.
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