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Definition of Mathematical Term Premium,Reserve,Prevailing,Price

Definition of Mathematical Term Premium, Reserve, Prevailing, Price

1.Premium-

(1.)The amount paid for the loan of money, in addition to normal interest
(2.)The difference between the selling price and par value of stocks, bonds, notes and shares when the selling price is greater (e. g., premium bonds are bonds which sell at a premium – for more than par value). Compare Discount.

 Definition of Mathematical Term Premium,Reserve,Prevailing,Price

 Definition of Mathematical Term Premium,Reserve,Prevailing,Price

(3.)One kind of currency is at a premium when it sells for more than its face value in terms of another ;when one dollar in gold sells for $1.10 in paper money, gold is at a premium of 10 cents per dollar.
(4.)The amount paid for insurance. A net premium is a premium which does not include any of the company’s operating expenses. Explicitly, net annual premium are equal annual payments made at the beginning of each policy year to pay the cost of a policy figured under the following assumptions :all policy holders will die at a rate given by a standard (accepted) mortality table ;the insurance company’s funds will draw interest at a certain given rate ;every benefit will be paid at the close of the policy year in which it carrying on the company’s business ;the net single premium is the present value of the contract benefits of the insurance policy. The natural premium is the net single premium for a one-year term insurance policy at a given age (this is the yearly sum required to meet the cost of insurance each year, not including the company’s operating expenses). Net level premium are fixed (equal) premiums (usually annual), which are equivalent over a period of years to the natural premiums over the same period. In the early years, the premiums are greater than the natural premium ;in the later years, they are less. Gross premium (or office premium) is the premium paid to the insurance company ;net premium, plus allowances for office expenses, medical examinations, agents’ fees etc., minus deductions due to income. Installment premium are annual premiums payable in installments during the year. The single premium for an insurance policy is the amount which, if Paid on the policy date, would meet all premiums on the policy.

2.Reserve (Life Insurance) 

The amount an insurance company needs (at a given time) to add to future net premium and interest to pay all claims expected according to the particular mortality table being used (this is the difference between the present value of future premiums and is a liability, also called the reinsurance fund or self-insurance fund). The reserve per policy (the net premium reserve) is called the initial reserve when computed at the beginning of a policy year just after the premium been received and the terminal reserve when computed at the end of a policy year before the premium has been paid. The average of the initial and terminal reserves is called the mean reserve. The prospective method for computing reserves makes use of the fact that the reserve (initial or terminal) is the difference between the present value of future premiums. It is also possible to use the past history of the policy to compute the reserve (the retrospective method), computing the present value of the past difference of the net level premiums and the natural premiums (this difference is positive in the early years of the policy and negative in the later years). A premium deficiency reserve is an amount equal to the difference between the present value of future net premium and future gross premiums (required in most states when gross premium is less than net premium.

3.Prevailing –

Prevailing interest rate for a given investment. The rate which is generally accepted for that particular type of investment at the time under consideration. Syn. Income rate, current rate, yield rate.

4.Price –

The quoted sum for which merchandise or contracts (bonds, mortgages, stock, etc.) are offered for sale or the price for which they are actually sold (the selling price). The price recorded in wholesale catalogues and other literature is the list price (it is usually subject to a discount to retail merchants). The net price is the price after all discounts and other reductions have been made. For bonds the total payment made for a bond is the flat price or purchase price ;the quoted price (“and interest price”) is the same as the book value of the bond. The theoretical value of the purchase price of a bond on a dividend date is the present value of the redemption price (usually face value) plus the present value of an annuity whose payments are equal to the dividends on the bond ;between dividend dates, the purchase price is the sum of the price of the bond at the last interest date and the accrued interest (the proportionate part of the next coupon which is paid to the seller). The flat price is equal to the quoted price plus the the accrued interest. The redemption price of a bond is the price that must be paid to redeem the bond. If a bond specifies that it may be redeemed at specified dates prior to maturity, the price at which it may be redeemed on such dates is the call price.

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