“In force value” is a term that is often used in the life industry.
“Current value” is a term that is thrown around a lot in the insurance industry, particularly life insurance. This term specifically refers to the amount of present or present value of earnings that owners and investors of life insurance companies anticipate will be realized under a group of life insurance policies over a period of time. Projecting this number is critical for insurers as it helps determine if the insurer will remain solvent in the long run and generate some form of profit in addition to meeting claims submitted by customers.
Since providing life insurance is considered a current type of business, owners must project the revenue stream, operating costs, and ultimately net income of the business. This process involves considering the present value of all policies currently in force and projecting what type of income will be generated from these policies until claims under these insurance contracts are settled. This makes it easier to determine if new policies are being written at a pace that helps balance payments, 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 current value requires the identification of the present value of the life policies currently issued, given the amount of the premiums generated by these policies. When combined with the investment returns of these premiums, the resulting income stream can be compared to expenses and it will be possible to determine if changes to current strategies are needed to sustain the operation. Insurers generally calculate the effective amount on a regular basis, making sure that the volume of new policies written is sufficient to offset the number of policies that have settled since the last calculation.
The frequency of determination of 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 rate of turnover from new policies to terminated policies that occurs on average per accounting month.