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Definition of Premium
1) Amount paid for a bond above the par value.
Annual amount payable, by a client, for selected product or service.
This is your payment for the cost of insurance. You may pay annually, semi-annually, quarterly or monthly. The least expensive method is annually. Using any of the other payment modes will cost you more money. For example, paying monthly will cost about 17% more. If you pay annually and terminate your coverage part way through the year, you may not receive a refund for the remaining months to the annual renewal date.
Yearly amount payable by a client for a policy or component.
A benefit that automatically forfeits premium payments.
the additional value inherent in the control interest as contrasted to a minority interest, which reflects its power of control
The percentage by which the conversion price in a convertible security exceeds the
A differential in promised yield that compensates the investor for the risk inherent in
Difference in promised yields between a default-free bond and a riskier bond.
A currency trades at a forward premium when its forward price is higher than its spot price.
A premium that remains unchanged throughout the life of a policy
This is a type of insurance for which the cost is distributed evenly over the premium payment period. The premium remains the same from year to year and is more than actual cost of protection in the earlier years of the policy and less than the actual cost of protection in the later years. The excess paid in the early years builds up a reserve to cover the higher cost in the later years.
Forward rate minus expected future short-term interest rate.
Risk premium of market portfolio. Difference between market return and return on risk-free Treasury bills.
Extra average return from investing in longversus short-term Treasury securities.
The option price.
A bond that is selling for more than its par value.
Annual or monthly amounts payable, by a client, for a selected insurance coverage to insure debt obligations to their creditors are protected.
A nonqualified stock option whose option price is set substantially
Payment schedule of policy premiums, usually selected by the policy owner (monthly, quarterly, annually).
After premiums have been paid for a number of years, further annual premiums may be paid by the current dividends and the surrender of some of the paid-up additions which have built up in the policy. In effect, the policy can begin to pay for itself. Whether a policy becomes eligible for premium offset, the date on which it becomes eligible and whether it remains eligible once premium offset begins, will all depend on how the dividend scale changes over the years. Since dividends are not guaranteed, premium offset cannot be guaranteed either.
The reward for holding the risky market portfolio rather than the risk-free asset. The spread
The additional rate of return required on a risky project
Expected return in excess of risk-free return as compensation for risk.
The difference between the yields of two bonds because of differences in their risk.
The difference between the required rate of return on a riskless asset with the same expected life.
Risk premium approach
The most common approach for tactical asset allocation to determine the relative
Single-premium deferred annuity
An insurance policy bought by the sponsor of a pension plan for a single
Tender offer premium
The premium offered above the current market price in a tender offer.
Excess of the yields to maturity on long-term bonds over those of short-term bonds.
Also called time value, the amount by which the option price exceeds its intrinsic value. The
premiums paid for coverage not yet provided.
This term relates to participating whole life insurance and the use of the dividend to reduce or completely eliminate the need for future premiums. In the 1980's life insurance company's profits from investment were exceedingly high compared to historical experience. It became common for a salesperson to show new prospective clients how quickly his or her insurance company's dividends would cover the future cost of future premiums. In some cases more emphasis was put on the value of future dividends than on the fact that future dividends were not guaranteed and could only be projected based on current earnings. Many life insurance buyers have since learned that the dividends they expected in the 80's no longer exist in the 90's and they are continuing to dig into their pockets to pay insurance premiums.
Waiver of Premium
This is an option available to the applicant for life insurance which sets certain conditions under which an insurance policy will be kept in full force by the insurance company without the payment of premiums. Very specifically, a life insured would have to become totally disabled through injury or illness for a period of six months before the benefit kicks in. When it does, the insurance company retroactively pays premiums from the beginning of the disability until the time the insured is able to perform some form of regular activity. 'Totally disabled' is highlited here, because that is what is required to receive this benefit.
Waiver of Premium
A benefit that allows CLA to pay premiums on behalf of the insured.
Cost of a security adjusted for the amortization of any purchase premium or
Assuris is a not for profit organization that protects Canadian policyholders in the event that their life insurance company should become insolvent. Their role is to protect policyholders by minimizing loss of benefits and ensuring a quick transfer of their policies to a solvent company where their benefits will continue to be honoured. Assuris is funded by the life insurance industry and endorsed by government. If you are a Canadian citizen or resident, and you purchased a product from a member life insurance company in Canada, you are protected by Assuris.
A procedure for making the effective date of a policy earlier than the application date. Backdating is often used to make the age of the consumer at policy issue lower than it actually was in order to get a lower premium.
Related: premium payback period.
A guaranteed investment contract purchased with a single (one-shot) premium. Related:
An option contract that gives its holder the right (but not the obligation) to purchase a specified
Capital asset pricing model (CAPM)
An economic theory that describes the relationship between risk and
capital asset pricing model (CAPM)
Theory of the relationship between risk and return which states that the expected risk
CARs (cumulative abnormal returns)
a measure used in academic finance articles to measure the excess returns an investor would have received over a particular time period if he or she were invested in a particular stock.
Events that are possible, but may or may not happen. premium rates and acceptance of certain risk are based on contingencies.
Corporate taxable equivalent
Rate of return required on a par bond to produce the same after-tax yield to
High-coupon bonds that sell at only at a moderate premium because they are callable at a
Referring to the selling price of a bond, a price below its par value. Related: premium.
As the term dividend relates to a corporation's earnings, a dividend is an amount paid per share from a corporation's after tax profits. Depending on the type of share, it may or may not have the right to earn any dividends and corporations may reduce or even suspend dividend payments if they are not doing well. Some dividends are paid in the form of additional shares of the corporation. Dividends paid by Canadian corporations qualify for the dividend tax credit and are taxed at lower rates than other income.
An agreement in which one party, for an upfront premium, agrees to compensate the other at
The return expected on a risky asset based on a probability distribution for the possible rates
Expected return-beta relationship
Implication of the CAPM that security risk premiums will be
An investment prospect that has a zero risk premium.
Fixed-price tender offer
A one-time offer to purchase a stated number of shares at a stated fixed price,
A specific period of time after a premium payment is due during which the policy owner may make a payment, and during which, the protection of the policy continues. The grace period usually ends in 30 days.
Situation in which a large block of stock is held by an unfriendly company, forcing the target
Guaranteed investment contract (GIC)
A pure investment product in which a life company agrees, for a
One of several investment accounts in which your premiums may be invested within your life insurance policy.
Interest rate agreement
An agreement whereby one party, for an upfront premium, agrees to compensate the
interest rate parity
Theory that forward premium equals interest rate differential.
Interest Rate Parity
Theory that real interest rates are approximately the same across countries except for a risk premium.
A futures market in which the nearer months are selling at price premiums to the more
A closed-end fund regulated by the Investment Company Act of 1940. These funds have a
Involuntary liquidation preference
A premium that must be paid to preferred or preference stockholders if
This refers to the termination of an insurance policy due to the owner of the policy failing to pay the premium within the grace period [Usually within 30 days after the last regular premium was required and not paid]. It is possible to re-instate the coverage with the same premium and benefits intact but the life insured will have to qualify for this coverage all over again and bring up to date all unpaid premiums.
Policies which are sold but do not remain in force because the policyholder fails to pay premiums.
Liquidity theory of the term structure
A biased expectations theory that asserts that the implied forward
Market price of risk
A measure of the extra return, or risk premium, that investors demand to bear risk. The
In October 1996 it was announced in the international news that scientists had finally located the link between cigarette smoking and lung cancer. In the early 1980's, some Canadian Life Insurance Companies had already started recognizing that non-smokers had a better life expectancy than smokers so commenced offering premium discounts for life insurance to new applicants who have been non-smokers for at least 12 months before applying for coverage. Today, most life insurance companies offer these discounts.
The amount of money the company must spend on overhead, distribution, taxes, underwriting the risk and servicing the policy. It is a factor in calculating premium rates.
Also called the option premium, the price paid by the buyer of the options contract for the right
A pay premium of 50 percent of the regular rate of pay that is earned
Policy Acquisition Costs
Costs incurred by insurance companies in signing new policies, including expenditures on commissions and other selling expenses, promotion expenses, premium
Administrative charge included in a Policy premium.
Preferred habitat theory
A biased expectations theory that believes the term structure reflects the
Regulatory pricing risk
Risk that arises when regulators restrict the premium rates that insurance companies
This is the restoration of a lapsed life insurance policy. The life insurance company will require evidence of continuing good health and the payment of all past due premiums plus interest.
The firm buys back its own stock from a potential bidder, usually at a substantial
Temporary Life Insurance
Temporary insurance coverage is available at time of application for a life insurance policy if certain conditions are met. Normally, temporary coverage relates to free coverage while the insurance company which is underwriting the risk, goes through the process of deciding whether or not they will grant a contract of coverage. The qualifications for temporary coverage vary from insurance company to insurance company but generally applicants will qualify if they are between the ages of 18 and 65, have no knowledge or suspicions of ill health, have not been absent from work for more than 7 days within the prior 6 months because of sickness or injury and total coverage applied for from all sources does not exceed $500,000. Normally a cheque covering a minimum of one months premium is required to complete the conditions for this kind of coverage. The insurance company applies this deposit towards the cost of a policy at its issue date, which may be several weeks in the future.
Term life insurance
A contract that provides a death benefit but no cash build-up or investment component.
Time value of an option
The portion of an option's premium that is based on the amount of time remaining
For an insurance company, the difference between the premiums earned and the costs
Unit investment trust
Money invested in a portfolio whose composition is fixed for the life of the fund.
Variable life insurance policy
A whole life insurance policy that provides a death benefit dependent on the
A dictionary meaning for the word viatica is "the eucharist as given to a dying person or to one in danger of death". In the context of Viatical Settlement it means the selling of one's own life insurance policy to another in exchange for an immediate percentage of the death benefit. The person or in many cases, group of persons buying the rights to the policy have high expectation of the imminent death of the previous owner. The sooner the death of the previous owner, the higher the profit. Consumer knowledge about this subject is poor and little is known about the entities that fund the companies that purchase policies. People should be very careful when considering the sale of their policy, and they should remember a sale of their life insurance means some group of strangers now owns a contract on their life. If a senior finds it difficult to pay for an insurance policy it might be a better choice to request that current beneficiaries take over the burden of paying the premium. The practice selling personal life insurance policies common in the United States and is spilling over into Canada. It would appear to have a definite conflict with Canada's historical view of 'insurable interest'.
Graph of yields (vertical axis) of a particular type of security
Yield to call
The percentage rate of a bond or note, if you were to buy and hold the security until the call date.
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