Valuation Period

What Does Valuation Period Mean?

A valuation period is the time frame during which unit values are determined for variable investment options at the close of each business day. In the context of insurance, valuation periods are important for investment-based products, such as certain life insurance policies and annuities, as they help establish the value of the investment portion of the policy or annuity.

Insuranceopedia Explains Valuation Period

Some life insurance policies include investment vehicles, and with variable annuities, the insurer invests on behalf of the policyholder using the sums from premium payments. The value and payout of these policies depend on the performance of the chosen investment options; however, growth is not guaranteed, and the policyholder’s returns may fluctuate based on market conditions.

Variable annuities are one of several types of life insurance and annuity products that tie payouts to market performance rather than a fixed rate. Policyholders considering these products should understand that the unit value calculated at the end of each valuation period directly affects how much their contract is worth on any given day. Annuities with variable subaccounts, in particular, can see significant swings in value from one valuation period to the next during volatile markets.

Because the contract’s worth changes with each valuation period, policyholders who want more predictable returns sometimes look at universal life insurance instead, where the interest crediting method differs from a variable product’s daily unit pricing. The frequency of these valuation updates also matters when estimating how much life insurance costs over time, since fees on variable products are deducted from the account value that the valuation period determines.