what is net premium 
net premium an insurance industry accounting term is calculated as the expected present value pv of an insurance policy s benefits minus the expected pv of future premiums the net premium calculation does not take into account future expenses associated with maintaining the insurance policy net premiums along with gross premiums help an insurance company to determine how much it owes in state taxes understanding net premiuman insurance policy s net premium value differs from the policy s gross premium value which does take into account future expenses the calculated difference between net premium and gross premium equals the expected pv of expense loadings minus the expected pv of future expenses thus a policy s gross value will be less than its net value when the value of future expenses is less than the pv of those expense loadings some states tax laws may allow insurance companies to reduce their gross premium by accounting for expenses and unearned premiums because the net premium calculation does not take into account expenses companies must determine how much expense they can add without causing a loss types of expenses that a company must account for include commissions paid to agents who sell the policies legal expenses associated with settlements salaries taxes clerical costs and other general expenses commissions typically vary with the policy s premium but general and legal expenses may not be tied to the premium to estimate allowed expenses a company can add a fixed amount of expenses to the net premium called flat loading add a percentage of the premium or add a combination of a fixed amount and a percentage of the premium 