Enter the present value of future benefits (PVFB) into the calculator to determine the net single premium (NSP). For a net (unloaded) single premium payable at issue, NSP equals PVFB.
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Net Single Premium Formula
The following formula is used to calculate the net single premium (NSP). In actuarial terms, the net single premium payable at issue equals the actuarial present value of future benefits (PVFB) (i.e., excluding expense/profit loadings).
NSP = PVFB
Formula source: American Academy of Actuaries – Actuarial Glossary (Net single premium)
Variables:
- NSP is the Net Single Premium (net/unloaded premium paid in one payment at issue).
- PVFB is the Present Value of Future Benefits (the discounted, probability-weighted value of expected benefit payments).
To calculate the net single premium, calculate the present value of future benefits (PVFB) and set NSP equal to PVFB.
What is a Net Single Premium?
A net single premium is a one-time, net (unloaded) payment made to an insurance company to fund the policy’s promised benefits. In actuarial pricing, it is essentially the present value of future benefits (PVFB) as of the issue date. Because it is a single premium, there are no additional scheduled premium payments after the initial payment. This premium structure is available for some permanent life insurance products (such as single-premium whole life) and may appeal to individuals who prefer one upfront payment rather than ongoing premiums.
How to Calculate Net Single Premium?
The following steps outline how to calculate the Net Single Premium.
- Determine the present value of future benefits (PVFB) for the policy’s benefits.
- Use the relationship NSP = PVFB (for a single premium payable at issue).
- Insert your value into the calculator above to confirm the result.
Example Problem :
Use the following variables as an example problem to test your knowledge.
Present Value of Future Benefits (PVFB) = $50,000
Net Single Premium (NSP) = $50,000