What does Present Value mean? Read on to discover the definition & meaning of the term Present Value - to help you better understand the language used in insurance policies.
The value today of a future payment, or payments, discounted at an appropriate interest rate. Given the time value of money, the present value of $1 today is greater than the present value of $1 a year from today. Due to the earning power of funds on hand compared to funds received in the future, delaying loss and/or premium payments generates cash flow and increases the present value of funds held. Present value analysis can be used for a variety of purposes including (1) calculating loss funding needs for risk retention programs and (2) comparing risk financing alternatives having different loss and premium payment streams.
We hope the you have a better understanding of the meaning of Present Value.