Posted in Finance, Accounting and Economics Terms, Total Reads: 349
Definition: Validation Period
Similar to a Break- Even Point, a Validation Period is defined for insurance. It is defined as the time period before the premium collected from the clients is sufficient to cover all the administrative expenses required to issue and maintain the policy. It can be explained at the time period from which the policy turns into a profit and the premiums collected start becoming a surplus.
It covers various expenses such as: the commissions, the medical tests (for general and health insurance), the cost of investigation and other expenses in underwriting the policy.
The time period depends on various factors such as: the type of the policy, costs associated with it. Validation period is considered important for the insurance company because it is the time from which the company would accrue profits.