Definitions for "Net Cost"
The total, out-of-pocket cost of owning a life insurance policy. There are different methods of calculating this. A simplified method of calculating it is to reduce the total premium paid by dividends returned, and then subtract the cash value from that figure. (Example: If you paid a total of $10,000 in premiums, had $1,200 returned in policy dividends and had accumulated a cash value of $2,000, your net cost for the policy would be $6,800.) This simplified method does not account for the time value of money.
A term ordinarily referring to the actual cost of insurance to a policyowner in a mutual company after the policy dividends are deducted from the premiums deposited. Since there are no dividends on nonparticipating policies, the net cost of such policies is equal to the total premiums paid. In determining the true net cost (sometimes called net ledger cost) of a life insurance policy over a period of years, allowance should also be made for the cash surrender value at the end of the given period. (See also: net premium.)
(1) In individual insurance, any one of several different figures used to indicate the cost of an insurance policy. (2) In group insurance, premiums less dividends.----------[ Back