Yearly Price of Protection Method
Definition - What does Yearly Price of Protection Method mean?
The yearly price of protection method is a procedure used by professionals dealing with the actuarial sciences in the insurance industry. Actuaries typically use this method for calculating the yearly cost of protection of a cash value life insurance policy. These policies typically include a savings component.
Insuranceopedia explains Yearly Price of Protection Method
The yearly price of protection method comes into use in calculations that entail estimates of insurance probability. During these calculations, actuaries determine the cash value accumulated in the policy at the beginning of the year. To this, they add all the premiums paid in that particular year.
Thereafter, they take the product of the result of the above calculation and the assumed interest rate. This helps them arrive at the forecasted or projected cash surrender value of the policy.