What is the value of in-force? (with photo)

“Value in force” is a term often used in the life industry.

“Value in force” is a term used a lot in the insurance industry, particularly life insurance. This term specifically refers to the amount of present or present value of earnings that life insurance company owners and investors anticipate will be realized with a group of life insurance policies over a period of time. Projecting this number is critical for insurers as it helps determine whether the insurer will remain solvent over the long term and generate some sort of profit in addition to honoring claims filed by clients.

Since providing life insurance is considered a current business type, owners must project the revenue stream, operating costs and, ultimately, the net income from the venture. This process involves considering the present value of all policies currently in effect and projecting what kind of revenue will be generated from these policies until the claims under these insurance contracts are settled. This makes it easier to determine whether new policies are being written at a pace that helps balance payments, effectively keeping the company solvent. It also helps determine whether the investments held by the insurer are producing a sufficient return to help support the overall business model. When this is the cause,

The calculation of the value in force requires the identification of the present value of the life policies currently issued, in view of the amount of premiums generated by these policies. When paired with the investment returns of these premiums, the resulting income stream can be compared to expenses and it will be possible to determine if any changes to current strategies must be made to sustain the operation. Typically, insurers calculate the effective amount on a regular basis, ensuring that the volume of new policies issued is sufficient to offset the number of policies that have been liquidated since the last calculation.

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The frequency of determining the effective value will vary slightly. It is not uncommon for some insurers to project this amount at the end of each billing period. Others may decide to determine this amount on a quarterly basis. Frequency is sometimes determined based on the turnover rate from new policies to settled policies that occur on average per accounting month.

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