Expected Value

What Does Expected Value Mean?

Expected value is the anticipated future value of an investment or asset after a specified period.

Insuranceopedia Explains Expected Value

Expected value can help both insurance companies and policyholders in selecting investments. If the expected value of an investment is low relative to the associated risk, it may be considered a poor choice. However, if the risk is manageable and the expected value is sufficiently high, the investment may be seen more favorably.

Life insurance policies often include an investment component. As a result, those considering a policy will evaluate the expected value of the investments, not just the coverage the policy provides. This applies mainly to permanent life insurance, where part of each premium builds cash value over time. Indexed universal life insurance is one example, since its growth is linked to a stock market index and the expected return depends on how that index performs.